UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) |
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(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large Accelerated Filer ¨ |
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| Non-accelerated Filer ¨ |
| Smaller Reporting Company |
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| Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
INDEX
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Part I | FINANCIAL INFORMATION | Page |
3 | ||
| Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 | 3 |
| 5 | |
| 6 | |
| 7 | |
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 | 8 |
| 10 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 38 | |
58 | ||
58 | ||
Part II | OTHER INFORMATION | |
58 | ||
59 | ||
59 | ||
60 | ||
61 |
PART I – FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
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| June 30, |
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| December 31, | |
Amounts in thousands, except for share and per share information |
| 2020 |
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| 2019 | |
ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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Receivables, net |
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Prepaid expenses |
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Inventories |
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Other current assets |
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Assets held for sale |
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Total Current Assets |
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Property and equipment, net |
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Leased right-of-use assets, net |
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Goodwill |
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Intangible assets, net |
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Deferred income taxes |
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Cost investment |
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Note receivable, net of current portion and unamortized discount |
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Deposits and other |
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Total Assets |
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Current portion of long-term debt |
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Current portion of operating lease liabilities |
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Current portion of finance lease liabilities |
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Accounts payable |
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Accrued liabilities |
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Accrued payroll |
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Taxes payable |
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Contingent liability (Note 8) |
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Liabilities held for sale |
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Total Current Liabilities |
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Long-term debt, net of current portion and deferred financing costs (Note 6) |
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Long-term financing obligation to VICI Properties, Inc. subsidiaries (Note 7) |
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Operating lease liabilities, net of current portion |
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Finance lease liabilities, net of current portion |
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Taxes payable and other |
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Deferred income taxes |
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Total Liabilities |
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Commitments and Contingencies (Note 8) |
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See notes to unaudited condensed consolidated financial statements.
- Continued -
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (continued)
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| June 30, |
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| December 31, | |
Amounts in thousands, except for share and per share information |
| 2020 |
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| 2019 | |
Equity: |
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Preferred stock; $ |
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Common stock; $ |
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Additional paid-in capital |
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(Accumulated deficit) retained earnings |
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Accumulated other comprehensive loss |
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Total Century Casinos, Inc. Shareholders' Equity |
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Non-controlling interests |
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Total Equity |
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Total Liabilities and Equity |
| $ |
| $ |
See notes to unaudited condensed consolidated financial statements.
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS (Unaudited)
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| For the three months |
| For the six months | ||||||||
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Amounts in thousands, except for per share information |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Operating revenue: |
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Gaming |
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Hotel |
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Food and beverage |
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Other |
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Net operating revenue |
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Operating costs and expenses: |
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Gaming |
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Hotel |
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Food and beverage |
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General and administrative |
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Depreciation and amortization |
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Impairment - goodwill and intangible assets |
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Total operating costs and expenses |
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Earnings (Loss) from equity investment |
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(Loss) earnings from operations |
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Non-operating income (expense): |
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Interest income |
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Interest expense |
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Gain on foreign currency transactions, cost recovery income and other |
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Non-operating (expense) income, net |
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(Loss) earnings before income taxes |
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Income tax expense |
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Net (loss) earnings |
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Net loss (earnings) attributable to non-controlling interests |
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Net (loss) earnings attributable to Century Casinos, Inc. shareholders |
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| $ | ( |
| $ | ( |
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(Loss) earnings per share attributable to Century Casinos, Inc. shareholders: |
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Basic |
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Diluted |
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Weighted average shares outstanding - basic |
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Weighted average shares outstanding - diluted |
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See notes to unaudited condensed consolidated financial statements.
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
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| For the three months |
| For the six months | ||||||||
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| ended June 30, | ||||||||
Amounts in thousands |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
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Net (loss) earnings |
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| $ |
| $ | ( |
| $ | ||
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Other comprehensive (loss) income |
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Foreign currency translation adjustments |
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Other comprehensive income (loss) |
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Comprehensive (loss) income |
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Comprehensive (loss) income attributable to non-controlling interests |
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Net loss (earnings) attributable to non-controlling interests |
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Foreign currency translation adjustments |
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Comprehensive (loss) income attributable to Century Casinos, Inc. shareholders |
| $ | ( |
| $ |
| $ | ( |
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See notes to unaudited condensed consolidated financial statements.
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited)
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| For the three months |
| For the six months | ||||||||
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Amounts in thousands, except for share information |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Common Stock |
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Balance, beginning of period |
| $ |
| $ |
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Performance stock unit issuance |
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Balance, end of period |
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Additional Paid-in Capital |
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Balance, beginning of period |
| $ |
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Amortization of stock-based compensation (1) |
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Exercise of options |
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Balance, end of period |
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Accumulated Other Comprehensive Income (Loss) |
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Balance, beginning of period |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
Foreign currency translation adjustment |
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Balance, end of period |
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Retained Earnings |
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Balance, beginning of period |
| $ |
| $ |
| $ |
| $ | ||||
Net (loss) earnings |
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Cumulative effect of accounting change (2) |
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Balance, end of period |
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Total Century Casinos, Inc. Shareholders' Equity |
| $ |
| $ |
| $ |
| $ | ||||
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Noncontrolling Interests |
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Balance, beginning of period |
| $ |
| $ |
| $ |
| $ | ||||
Net (loss) earnings |
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Foreign currency translation adjustment |
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Distribution to non-controlling interest |
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Cumulative effect of accounting change (2) |
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Changes in non-controlling interest (2) |
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Balance, end of period |
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Total Equity |
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Common shares issued |
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See notes to unaudited condensed consolidated financial statements.
(1)
(2)
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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| For the six months | ||||
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Amounts in thousands |
| 2020 |
| 2019 | ||
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Cash Flows (used in) provided by Operating Activities: |
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Net (loss) earnings |
| $ | ( |
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Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
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Lease amortization |
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(Gain) loss on disposition of fixed assets |
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Adjustment of contingent liability (Note 8) |
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Unrealized loss on interest rate swaps |
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Amortization of stock-based compensation expense |
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Amortization of deferred financing costs and discount on note receivable |
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Impairment (Note 4 and Note 5) |
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Deferred taxes |
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Loss from unconsolidated subsidiary |
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Loss on sale of Golden Hospitality Ltd. (Note 1 and Note 4) |
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Cashless stock issuance |
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Changes in Operating Assets and Liabilities: |
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Receivables, net |
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Prepaid expenses and other assets |
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Accounts payable |
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Accrued liabilities |
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Inventories |
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Other operating liabilities |
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Accrued payroll |
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Taxes payable |
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Net cash (used in) provided by operating activities |
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Cash Flows used in Investing Activities: |
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Purchases of property and equipment |
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Acquisition of Mountaineer Casino, Racetrack & Resort, Century Casino Cape Girardeau and Century Casino Caruthersville (Note 3) |
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Note receivable proceeds |
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Net cash used in investing activities |
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– Continued –
See notes to unaudited condensed consolidated financial statements.
CENTURY CASINOS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued)
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| For the six months | ||||
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Amounts in thousands |
| 2020 |
| 2019 | ||
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Cash Flows provided by Financing Activities: |
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Proceeds from borrowings |
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Principal payments |
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Payment of deferred financing costs |
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Distribution to non-controlling interest |
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Proceeds from exercise of stock options |
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Net cash provided by financing activities |
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Effect of Exchange Rate Changes on Cash |
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| $ | |
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(Decrease) Increase in Cash, Cash Equivalents and Restricted Cash |
| $ | ( |
| $ | |
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Cash, Cash Equivalents and Restricted Cash at Beginning of Period |
| $ |
| $ | ||
Cash, Cash Equivalents and Restricted Cash at End of Period |
| $ |
| $ | ||
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Supplemental Disclosure of Cash Flow Information: |
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Interest paid |
| $ |
| $ | ||
Income taxes paid |
| $ |
| $ | ||
Income tax refunds |
| $ |
| $ | — | |
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Non-Cash Investing Activities: |
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Purchase of property and equipment on account |
| $ |
| $ | ||
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Non-Cash Financing Activities: |
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Distributions payable to non-controlling shareholders |
| $ | — |
| $ |
See notes to unaudited condensed consolidated financial statements.
CENTURY CASINOS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Century Casinos, Inc. (the “Company”) is a casino entertainment company with operations primarily in North America. The Company’s operations as of June 30, 2020 are detailed below.
The Company owns, operates and manages the following casinos through wholly-owned subsidiaries in North America:
The Century Casino & Hotel in Central City, Colorado (“CTL”)
The Century Casino & Hotel in Cripple Creek, Colorado (“CRC”)
Mountaineer Casino, Racetrack & Resort in New Cumberland, West Virginia (“Mountaineer” or “MTR”)
The Century Casino Cape Girardeau, Missouri (“Cape Girardeau” or “CCG”)
The Century Casino Caruthersville, Missouri (“Caruthersville” or “CCV”)
The Century Casino & Hotel in Edmonton, Alberta, Canada (“Century Resorts Alberta” or “CRA”)
The Century Casino St. Albert in Edmonton, Alberta, Canada (“CSA”)
Century Mile Racetrack and Casino in Edmonton, Alberta, Canada (“CMR” or “Century Mile”); and
The Century Casino Calgary, Alberta, Canada (“CAL”)
On March 17, 2020, the Company announced that it had permanently closed Century Casino Bath (“CCB”). CCB voluntarily surrendered its casino gaming license on April 28, 2020 and entered into a creditors voluntary liquidation (“CVL”) on May 6, 2020. See below for additional information about CCB.
Mountaineer, Cape Girardeau and Caruthersville (the “Acquired Casinos”) were acquired on December 6, 2019 from Eldorado Resorts, Inc. (“Eldorado Resorts”) (the “Acquisition”). See Note 3 for additional information about the Acquired Casinos and the Acquisition.
Century Bets!, Inc. (“CBS” or “Century Bets”) operates the pari-mutuel off-track betting network in southern Alberta, Canada. Prior to August 2019, the Company had a
The Company has a controlling financial interest through its wholly-owned subsidiary CRM in the following majority-owned subsidiaries:
The Company owns
The Company owns
The Company has the following concession, management and consulting service agreements:
As of June 30, 2020, the Company had a concession agreement with TUI Cruises for
The Company, through its subsidiary CRM, has a
The Company, through its subsidiary CRM, had a
Recent Developments Related to COVID-19
The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
In late 2019, an outbreak of COVID-19 was identified in China and has since spread throughout much of the world. The COVID-19 pandemic has had an adverse effect on the Company’s first and second quarter 2020 results of operations and financial condition, and the Company expects this situation will continue to have an adverse impact on its results for the remainder of 2020. The duration and impact of the COVID-19 pandemic otherwise remains uncertain. Between March 13, 2020 and March 17, 2020, the Company closed all of its casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19. The Company’s Polish locations reopened on May 18, 2020 and its North American operations reopened between June 1, 2020 and June 17, 2020. The reopening approaches varied, with casinos in some jurisdictions reopening fully and others permitted to operate with reduced levels of gaming space or without table games. In addition, some locations are operating with limited restaurant operating hours or continued closure of restaurants, requirements to wear face masks, including the requirement of guests to wear face masks, increased frequency of disinfecting surfaces and other measures to account for varying levels of demand.
During the temporary closures of its casinos, hotels and other facilities, the Company took actions to reduce operating costs, including furloughing most of its personnel, implementing reduced work weeks for other personnel until operations resumed, and temporarily reducing salaries to senior management on a voluntary basis. During the closures, the Company continued to pay benefits to its United States and Canadian employees, including part time employees. In Poland, all employees were paid reduced salaries based on local employment laws.
The Company cannot predict the negative impacts that the failure to suppress the spread of COVID-19 will have on its consumer demand, workforce, suppliers, contractors and other partners and, although all locations have reopened, whether future closures will be required. Such closures have had and will continue to have a material impact on the Company. While the severity and duration of such business impacts cannot currently be estimated, the effects of COVID-19 and the requirements of health and safety protocols are expected to continue to have a material impact on the Company.
In March 2020, as a proactive measure to increase its cash position and preserve financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic, the Company borrowed an additional $
The Revolving Facility includes a springing leverage ratio (the “Financial Covenant”) tested as of the last day of each fiscal quarter in which borrowings under the Revolving Facility as of such day equal or exceed $
The Company and the lender are currently reviewing the Financial Covenant calculation as of June 30, 2020 to determine whether the Company was in compliance with the covenant or was in default as of such date. If a default exists under the Financial Covenant as of June 30, 2020, the Company will not be able to borrow under the Revolving Facility or take certain actions that would otherwise be permitted under the Revolving Facility, and the lender may exercise other remedies, until such default is waived by the lender or the Macquarie Credit Agreement is amended. The Company repaid the Revolving Facility down to $
Additional Projects and Other Developments
Bermuda
In August 2017, the Company announced that, together with the owner of the Hamilton Princess Hotel & Beach Club in Hamilton, Bermuda, it had submitted a license application to the Bermudan government for a casino at the Hamilton Princess Hotel & Beach Club. The casino would feature approximately
Century Casino Bath
In March 2020, Century Casino Bath was closed due to COVID-19. Due to challenging conditions that included historical and forecast losses due to changes in the regulatory environment for casinos in England requiring enhanced due diligence of customers, CCB’s board of directors determined that it would enter into the CVL and control of CCB was relinquished. Under Accounting Standards Codification (“ASC”) 810, Consolidation, specifically ASC 810-10-15, consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners. Accordingly, when a subsidiary is in legal reorganization or files for bankruptcy, it is appropriate for the parent to deconsolidate the subsidiary. The Company will not regain control of CCB and determined that it was appropriate to deconsolidate CCB effective as of May 6, 2020. The Company will not retain any ownership in CCB and CCB will be dissolved as a company following its liquidation. The Company recognized a gain of $
Preparation of Financial Statements
The accompanying condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial reporting, the rules and regulations of the Securities and Exchange Commission which apply to interim financial statements and the instructions to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated.
In the opinion of management, all adjustments considered necessary for the fair presentation of financial position, results of operations and cash flows of the Company have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for the quarter ended June 30, 2020 are not necessarily indicative of the operating results for the full year.
Cash, Cash Equivalents and Restricted Cash
A reconciliation of cash, cash equivalents and restricted cash as stated in the Company’s condensed consolidated statements of cash flows is presented in the following table:
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| June 30, |
| June 30, | ||
Amounts in thousands |
| 2020 |
| 2019 | ||
Cash and cash equivalents |
| $ |
| $ | ||
Restricted cash included in deposits and other |
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Total cash, cash equivalents, and restricted cash shown in the statement of cash flows |
| $ |
| $ |
As of June 30, 2020, restricted cash included $
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. Management’s use of estimates includes estimates for property and equipment, goodwill, intangible assets and income tax.
Presentation of Foreign Currency Amounts
The Company’s functional currency is the US dollar (“USD” or “$”). Foreign subsidiaries with a functional currency other than the US dollar translate assets and liabilities at current exchange rates at the end of the reporting periods, while income and expense accounts are translated at average exchange rates for the respective periods. The Company and its subsidiaries enter into various transactions made in currencies different from their functional currencies. These transactions are typically denominated in the Canadian dollar (“CAD”), Euro (“EUR”), Polish zloty (“PLN”) and British pound (“GBP”). Gains and losses resulting from changes in foreign currency exchange rates related to these transactions are included in income from operations as they occur.
The exchange rates to the US dollar used to translate balances at the end of the reported periods are as follows:
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| June 30, |
| December 31, |
Ending Rates |
| 2020 |
| 2019 |
Canadian dollar (CAD) |
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Euros (EUR) |
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Polish zloty (PLN) |
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British pound (GBP) |
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The average exchange rates to the US dollar used to translate balances during each reported period are as follows:
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| For the three months |
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| For the six months |
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| ended June 30, |
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| ended June 30, |
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Average Rates |
| 2020 |
| 2019 |
| % Change |
| 2020 |
| 2019 |
| % Change |
Canadian dollar (CAD) |
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| ( |
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| ( | ||||
Euros (EUR) |
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| ( |
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| ( | ||||
Polish zloty (PLN) |
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| ( |
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| ( | ||||
British pound (GBP) |
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| ( |
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| ( | ||||
Source: Pacific Exchange Rate Service |
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In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The objective of ASU 2017-04 is to simplify the subsequent measurement of goodwill by entities performing their annual goodwill impairment tests by comparing the fair value of a reporting unit, including income tax effects from any tax-deductible goodwill, with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds fair value. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU 2017-04 on a prospective basis on January 1, 2020. The adoption of the standard did not have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”). The objective of ASU 2018-13 is to modify disclosure requirements on fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments should be adopted using the prospective method for certain disclosures within the guidance and retrospectively upon the effective date. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of the standard did not have a material impact on the Company’s financial statements or its disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”). The objective of ASU 2018-15 is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with those incurred to develop or obtain internal-use software. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2018-15 on January 1, 2020 using the prospective method and accounts for new contracts that are service arrangements using this guidance. The adoption of the standard did not have a material impact on the Company’s financial statements.
In October 2018, the FASB issued ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”). The objective of ASU 2018-17 is to improve (i) the application of variable interest entity guidance to private companies under common control and (ii) consideration of indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company adopted ASU 2018-17 on January 1, 2020. The adoption of the standard did not have a material impact on the Company’s financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The objective of ASU 2019-12 is (i) to simplify the accounting for income taxes by removing certain exceptions, (ii) to update certain requirements to simplify the accounting for income taxes, and (iii) to make minor codification improvements for income taxes. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on the Company’s financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). The objective of ASU 2020-04 is to provide optional expedients and exceptions for applying US GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance is effective from March 12, 2020 through December 31, 2022. The Company is evaluating the expedients and exceptions provided by this standard.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its financial statements or notes thereto.
On December 6, 2019, the Company completed the Acquisition of the operations of the Acquired Casinos from Eldorado Resorts. Immediately prior to the Acquisition, the real estate assets underlying the Acquired Casinos were sold to an affiliate of VICI Properties Inc. (“VICI PropCo”). On the closing date, certain subsidiaries of the Company and subsidiaries of VICI PropCo entered into a triple net lease agreement (the “Master Lease”) for the three Acquired Casino properties. The Master Lease has an initial annual rent of approximately $
The Company paid for the Acquisition using a portion of the $
In connection with the Acquisition, the Company made an initial payment to the seller of $
As of December 6, 2019, the Company began consolidating the Acquired Casinos as wholly-owned subsidiaries. CCG contributed $
The Company accounted for the transaction as a business combination, and accordingly, the acquired assets of $
The fair value of the assets acquired and liabilities assumed (excluding cash and restricted cash received) was determined to be $
multi-period excess earnings method;
cost method;
capitalized cash flow method;
relief from royalty method;
discounted cash flow method; and
direct market value approach.
Both the income and market approach valuation methodologies used for the identifiable net assets acquired in the Acquisition use Level 3 inputs and are provisional pending development of a final valuation.
Trade receivables and payables, inventory and other current and noncurrent assets and liabilities were valued at the existing carrying values as they represented a reasonable approximation of the fair value of those items at the Acquisition date, based on management’s judgment and estimates.
The personal property components of the fixed assets were primarily valued utilizing the market and cost approaches. Certain personal property with an active and identifiable secondary market value were valued using the market approach. This property included, but was not limited to, certain gaming/slot equipment, information and technology equipment and vehicles. The cost approach was utilized to value all other personal property.
The cost approach estimates fair value as the current cost of replacing or reproducing the utility of an asset, or group of assets and adjusting it for any depreciation resulting from one or more of the following: physical deterioration, functional obsolescence, and/or economic obsolescence.
The real estate assets that were sold to VICI PropCo subsidiaries and leased back by the Company were first adjusted to fair value concurrently with the Acquisition. The fair value of the properties was determined utilizing the direct capitalization method of the income approach. The fair value of the acquired real estate assets was determined to be $
The income approach incorporates all tangible and intangible property and served as a ceiling for the fair values of the acquired assets of the ongoing business enterprise, while still taking into account the premise of highest and best use.
The fair value of the gaming licenses was determined using the multi-period excess earnings methodology (“MPEEM”). The MPEEM is a variation of the income approach that allocates projected cash flows of the business to the gaming license intangible, including charges for contributory assets that, in addition to the gaming licenses, are required to generate the operating cash flows. The contributory assets of each reporting unit included working capital, real estate, fixed assets and other intangible assets. This methodology was considered appropriate as the gaming licenses are considered the primary intangible asset of the acquired entities and the licenses are linked to each respective facility. Under the respective state’s gaming legislation, the property-specific licenses can only be acquired if a theoretical buyer were to acquire each existing facility. The existing licenses could not be acquired and used for a different facility. The properties’ estimated future cash flows were the primary assumption in the respective valuations. Cash flow estimates included net gaming revenue, gaming operating expenses, general and administrative expenses, and tax expense.
The fair value of the customer relationships from the player’s club lists was valued using the incremental cash flow method under the income approach. The incremental cash flow method is used to estimate the fair value of an intangible asset based on a residual cash flow notion. This method measures the benefits (e.g., cash flows) derived from ownership of an acquired intangible asset as if it were in place, as compared to the acquirer’s expected cash flows as if the intangible asset were not in place (i.e., with-and-without). The present value difference in the two cash flow streams is ascribable to the intangible asset. The Company has assigned a
The fair value of the trade names was valued using the relief from royalty method. The relief from royalty method presumes that, without ownership of the asset, the Company would have to make a stream of payments to a brand or franchise owner in return for the right to use their name. By virtue of this asset, the Company avoids any such payments and records the related intangible value of the trade name. The primary assumptions in the valuation included projected revenue, a pre-tax royalty rate, the trade name’s useful life, and tax expense. The Company has assigned the Mountaineer trade name a
The Company has assigned an indefinite useful life to the gaming licenses, in accordance with its review of the applicable guidance of ASC Topic 350, Intangibles-Goodwill and Other (“ASC 350”). The standard requires the Company to consider, among other things, the expected use of the asset, the expected useful life of other related assets or asset groups, any legal, regulatory, or contractual provisions that may limit the useful life, the Company’s own historical experience in renewing similar arrangements, the effects of obsolescence, demand and other economic factors, and the maintenance expenditures required to obtain the expected cash flows. In that analysis, the Company determined that no legal, regulatory, contractual, competitive, economic or other factors limit the useful lives of these intangible assets. The Acquired Casinos currently have licenses in Missouri and West Virginia. The renewal of each state’s gaming license depends on a number of factors, including payment of certain fees and taxes, providing certain information to the state’s gaming regulator, and meeting certain inspection requirements. However, the Company’s historical experience has not indicated, nor does the Company expect, any limitations regarding its ability to continue to renew each license. No other competitive, contractual, or economic factor limits the useful lives of these assets. Accordingly, the Company has concluded that the useful lives of these licenses are indefinite.
Details of the Acquisition in the table below are based on estimated fair values of assets and liabilities as of December 6, 2019. The Acquisition was accounted for using the acquisition method of accounting. Assets acquired and liabilities assumed in connection with the Acquisition have been recorded at their preliminary fair values. Certain estimated values for the Acquisition for accrued liabilities, intangible assets, and deferred income taxes are not yet finalized pending the final purchase price allocations and the receipt of additional information from the acquired entities. As a result, the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized. The Company expects to finalize the allocation of the purchase price within one year of the Acquisition.
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Amounts in thousands |
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Cash |
| $ | |
Receivables |
|
| |
Prepaid expenses |
|
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Inventories |
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| |
Property and equipment |
|
| |
Property subject to financing obligation |
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Leased right-of-use assets |
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Casino licenses |
|
| |
Players club lists |
|
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Trademarks |
|
| |
Deposits and other |
|
| |
Accounts payable |
|
| ( |
Accrued liabilities |
|
| ( |
Accrued payroll |
|
| ( |
Operating lease liabilities |
|
| ( |
Financing obligation to VICI Properties, Inc. subsidiaries (1) |
|
| ( |
Net identifiable assets acquired |
|
| |
Add: Goodwill |
|
| |
Net assets acquired |
| $ |
(1)
The following table details the purchase consideration net cash outflow.
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Amounts in thousands |
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Outflow of cash to acquire subsidiaries, net of cash acquired |
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Cash consideration |
| $ | |
Less: cash and restricted cash balances acquired |
|
| ( |
Net cash used in investing activities |
| $ | |
Acquisition-related costs
The Company incurred acquisition costs of approximately $
Ancillary Agreements
In connection with the Acquisition, the Company and the sellers entered into a transition services agreement dated December 6, 2019, whereby the sellers agreed to provide the Company with certain transitional services following the Acquisition. The agreement compensates the sellers for services following the Acquisition as performed by employees at stated hourly rates. Fees incurred by the Company under the agreement amounted to $
Acquisition-Related Contingencies
Each of the acquired entities is a party to various legal and administrative proceedings, which have arisen in the normal course of business and relate to underlying events that occurred on or before December 6, 2019. Estimated losses have been accrued as of the Acquisition date for these proceedings in accordance with ASC Topic 450, which requires that an amount be accrued if the loss is probable and can be estimated. The current liability for the estimated losses associated with these proceedings is not material to the Company’s consolidated financial condition and those estimated losses are not expected to have a material impact on its results of operations. However, such proceedings can be costly, time consuming and unpredictable and, therefore, no assurance can be given that the final outcome of such proceedings may not materially impact the Company’s consolidated financial condition or results of operations. The Company accrued $
Pro forma results (Unaudited)
The following table provides unaudited pro forma information of the Company as if the Acquisition had occurred at the beginning of the earliest comparable period presented. The unaudited pro forma financial results include adjustments for transaction-related costs that are directly attributable to the Acquisition for the three and six months ended June 30, 2019 including (i) removal of acquisition costs reported by the Company, (ii) pro forma adjustments to record the removal of interest expense related to the BMO Credit Agreement (as defined below), (iii) pro forma adjustments to record interest expense related to the Macquarie Credit Agreement and Master Lease, (iv) pro forma adjustments to record depreciation for assets acquired in the Acquisition, and (v) an estimated tax impact. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the acquisition been consummated during the periods for which the pro forma information is presented, or of future results. For the purposes of this table, financial information has been provided for the three and six months ended June 30, 2019 for the Acquired Casinos and the Company.
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| For the three months ended |
| For the six months ended | ||
|
| June 30, 2019 |
| June 30, 2019 | ||
Amounts in thousands, except for per share information |
| (Unaudited) |
| (Unaudited) | ||
Net operating revenue |
| $ | |
| $ | |
Net earnings attributable to Century Casinos, Inc. shareholders |
| $ | |
| $ | |
Basic and diluted earnings per share |
| $ | |
| $ | |
Cost Investment
Mendoza Central Entretenimientos S.A.
In October 2014, CRM entered into an agreement (the “MCE Agreement”) with Gambling and Entertainment LLC and its affiliates, pursuant to which CRM purchased
In March 2020, the Company assessed the MCE investment due to COVID-19. Casino de Mendoza, MCE’s only customer, was temporarily closed in March 2020. The investment was valued using the following approaches: (i) income approach utilizing the business enterprise value which resulted in no value, and (ii) a value in exchange basis which resulted in no value due to the current circumstances of COVID-19. The Company charged $
Equity Investment
Minh Chau Ltd.
In April 2018, CRM acquired a
In May 2019, the Company sold its ownership interest in GHL to the unaffiliated shareholders of GHL for a $
Goodwill represents the future economic benefits of a business combination to the extent that the purchase price exceeds the fair value of the net identified tangible and intangible assets acquired and liabilities assumed. The Company determines the estimated fair value of the net identified tangible and intangible assets acquired and liabilities assumed after review and consideration of relevant information including discounted cash flows, quoted market prices, and estimates made by management.
The Company tests goodwill for impairment as of October 1 each year, or more frequently as circumstances indicate it is necessary. Testing compares the estimated fair values of our reporting units to the reporting units’ carrying values. The reportable segments with goodwill balances as of June 30, 2020 included Canada and Poland. For the quantitative goodwill impairment test, the current fair value of each reporting unit with goodwill balances is estimated using a combination of (i) the income approach using the discounted cash flow method for projected revenue, EBITDA and working capital, (ii) the market approach observing the price at which comparable companies or shares of comparable companies are bought or sold, and (iii) fair value measurements using either quoted market price or an estimate of fair value using a present value technique. The cost approach, estimating the cost of reproduction or replacement of an asset, was considered but not used because it does not adequately capture an operating company’s intangible value. If the carrying value of a reporting unit exceeds its estimated fair value, the fair value of each reporting unit is allocated to the reporting unit’s assets and liabilities to determine the implied fair value of the reporting unit’s goodwill and whether impairment is necessary.
The Company tests its indefinite-lived intangible assets as of October 1 each year, or more frequently as circumstances indicate it is necessary. The fair value is determined primarily using the multi period excess earnings model and the relief from royalty method under the income approach. The Company impaired the casino license at Century Casino Bath in December 2019.
During the first quarter of 2020, as a result of the COVID-19 pandemic and associated closure of its casinos, the Company concluded these triggering events could indicate possible impairment of its goodwill and indefinite-lived intangible assets. The Company performed a quantitative and qualitative impairment analysis and determined that goodwill and casino licenses related to certain reporting units were impaired. During the second quarter of 2020, the Company paid an additional $
Goodwill
Changes in the carrying amount of goodwill related to the United States, Canada and Poland segments are as follows:
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Amounts in thousands |
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| Balance at January 1, 2020 |
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| Acquisition |
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| Impairment |
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| Currency translation |
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| Balance at |
Goodwill, net by segment: |
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United States |
| $ |
| $ |
| $ | ( |
| $ |
| $ | ||||
Canada |
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| ( |
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| ( |
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Poland |
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| ( |
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|
| $ |
| $ |
| $ | ( |
| $ | ( |
| $ |
Intangible Assets
Intangible assets at June 30, 2020 and December 31, 2019 consisted of the following:
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| June 30, |
|
| December 31, |
Amounts in thousands |
| 2020 |
| 2019 | ||
Finite-lived |
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Casino licenses |
| $ | |
| $ | |
Less: accumulated amortization |
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| ( |
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| ( |
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Trademarks |
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Less: accumulated amortization |
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| ( |
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| ( |
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Players Club Lists |
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Less: accumulated amortization |
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| ( |
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| ( |
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Total finite-lived intangible assets, net |
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Indefinite-lived |
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Casino licenses |
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Trademarks |
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Total indefinite-lived intangible assets |
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|
| |
Total intangible assets, net |
| $ | |
| $ | |
Trademarks
The Company currently owns
Trademarks: Finite-Lived
The Company has determined that the Mountaineer trademark, reported in the United States segment, has a useful life of
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Amounts in thousands |
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| Balance at |
| Amortization |
|
| Balance at June 30, 2020 |
United States |
| $ | $ | ( |
| $ |
As of June 30, 2020, estimated amortization expense of the Mountaineer trademark over the next five years was as follows:
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Amounts in thousands |
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2020 |
| $ | |
2021 |
|
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2022 |
|
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2023 |
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2024 |
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Thereafter |
|
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|
| $ | |
The weighted-average amortization period of the Mountaineer trademark is
Trademarks: Indefinite-Lived
The Company has determined the Century Casinos trademark, reported in the Corporate and Other segment, and the Casinos Poland trademark, reported in the Poland segment, have indefinite useful lives and therefore the Company does not amortize these trademarks. Costs incurred to renew trademarks that are indefinite-lived are expensed over the renewal period as general and administrative expenses on the Company’s condensed consolidated statement of (loss) earnings. Changes in the carrying amount of the indefinite-lived trademarks are as follows:
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Amounts in thousands |
|
| Balance at January 1, 2020 |
|
| Currency translation |
|
| Balance at June 30, 2020 |
Poland |
| $ |
| $ | ( |
| $ | ||
Corporate and Other |
|
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| |||
|
| $ |
| $ | ( |
| $ |
Casino Licenses: Finite-Lived
As of June 30, 2020, Casinos Poland had
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Amounts in thousands |
|
| Balance at January 1, 2020 |
|
| Amortization |
|
| Currency translation |
|
| Balance at June 30, 2020 |
Poland |
| $ |
| $ | ( |
| $ | ( |
| $ |
As of June 30, 2020, estimated amortization expense for the CPL casino licenses over the next five years was as follows:
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Amounts in thousands |
|
|
|
2020 |
| $ | |
2021 |
|
| |
2022 |
|
| |
2023 |
|
| |
2024 |
|
| |
Thereafter |
|
| |
|
| $ |
These estimates do not reflect the impact of future foreign exchange rate changes or the continuation of the licenses following their expiration. The weighted average period before the current CPL casino licenses expire is
Casino Licenses: Indefinite-Lived
The Company has determined that the casino licenses held in the United States segment from the Missouri Gaming Commission and the West Virginia Lottery Commission and held in the Canada segment from the Alberta Gaming, Liquor and Cannabis Commission and Horse Racing Alberta are indefinite-lived. Costs incurred to renew licenses that are indefinite-lived are expensed over the renewal period to general and administrative expenses on the Company’s condensed consolidated statement of (loss) earnings. Changes in the carrying amount of the licenses are as follows:
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Amounts in thousands |
|
| Balance at January 1, 2020 |
|
| Impairment |
|
| Currency translation |
|
| Balance at June 30, 2020 |
United States |
| $ |
| $ | ( |
| $ |
| $ | |||
Canada |
|
|
|
|
|
| ( |
|
| |||
|
| $ |
| $ | ( |
| $ | ( |
| $ |
Player’s Club Lists
The Company has determined that the player’s club lists, reported in the United States segment, have a useful life of
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Amounts in thousands |
|
| Balance at |
|
| Amortization |
|
| Balance at June 30, 2020 |
United States |
| $ |
| $ | ( |
| $ |
As of June 30, 2020, estimated amortization expense for the player’s club lists over the next five years was as follows:
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Amounts in thousands |
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|
|
2020 |
| $ | |
2021 |
|
| |
2022 |
|
| |
2023 |
|
| |
2024 |
|
| |
Thereafter |
|
| |
|
| $ |
The weighted-average amortization period for the player’s club lists is
Long-term debt and the weighted average interest rates as of June 30, 2020 and December 31, 2019 consisted of the following:
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Amounts in thousands |
| June 30, 2020 |
| December 31, 2019 | ||||||||
Credit agreement - Macquarie |
| $ |
|
|
| $ |
|
| ||||
Credit agreements - CPL |
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| |||
UniCredit loan (1) |
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| ||||
UniCredit agreement |
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| — |
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| — | ||
Financing obligation - CDR land lease |
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| ||
Total principal |
| $ | |
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| $ | |
|
| ||
Deferred financing costs |
|
| ( |
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| ( |
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Total long-term debt |
| $ | |
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| $ | |
|
|
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Less current portion |
|
| ( |
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| ( |
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Long-term portion |
| $ | |
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| $ | |
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(1)
Credit Agreement – Macquarie Capital
On December 6, 2019, the Company entered into a $
The Term Loan matures on
Borrowings under the Macquarie Credit Agreement bear interest at a rate equal to, at the Company’s option, either (a) the London Interbank Offered Rate (“LIBOR”) (as defined in the Macquarie Credit Agreement), plus an applicable margin (each loan, being a “LIBOR Loan”) or (b) the Alternate Base Rate (as defined in the Macquarie Credit Agreement) (each loan, being a “ABR Loan”). The applicable margin for borrowings under the Term Loan is currently
In addition, on a quarterly basis, the Company is required to pay each lender under the Revolving Facility a commitment fee in respect of any unused commitments under the Revolving Facility in the amount of
The Macquarie Credit Agreement requires the Company to prepay the Term Loan, subject to certain exceptions, with:
The Macquarie Credit Agreement provides that the Term Loan may be prepaid, subject to a prepayment premium in an amount equal to
The borrowings under the Macquarie Credit Agreement are guaranteed by the material subsidiaries of the Company, subject to certain exceptions, and are secured by a pledge (and, with respect to real property, mortgage) of substantially all of the existing and future property and assets of the Company and the guarantors, subject to certain exceptions.
The Macquarie Credit Agreement contains customary representations and warranties, affirmative, negative and financial covenants, and events of default. All future borrowings under the Macquarie Credit Agreement are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties. See Note 1 for further discussion of the Macquarie Credit Agreement.
Deferred financing costs consist of the Company’s costs related to the financing of the Macquarie Credit Agreement. The Company recognized $
Casinos Poland
CPL’s short-term line of credit with Alior Bank ended in April 2020. The line of credit bore an interest rate of three-month Warsaw Interbank Offered Rate (“WIBOR”) plus
As of June 30, 2020, CPL had
The first credit agreement between CPL and mBank is a PLN
The second credit agreement between CPL and mBank is a PLN
The third credit agreement between CPL and mBank is a PLN
As of June 30, 2020, CPL also had a short-term line of credit with mBank used to finance current operations. The line of credit bears an interest rate of overnight WIBOR plus
Under Polish gaming law, CPL is required to maintain PLN
Century Resorts Management
In August 2017, the Company’s subsidiary CCB entered into a GBP
In August 2018, CRM entered into a loan agreement with UniCredit (the “UniCredit Agreement”) for a revolving line of credit of up to EUR
Century Downs Racetrack and Casino
CDR’s land lease is a financing obligation of the Company. Prior to the Company’s acquisition of its ownership interest in CDR, CDR sold a portion of the land on which the REC project is located and then entered into an agreement to lease back a portion of the land sold. The Company accounts for the lease using the financing method by accounting for the land subject to lease as an asset and the lease payments as interest on the financing obligation. Under the land lease, CDR has
As of June 30, 2020, scheduled maturities related to long-term debt were as follows:
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Amounts in thousands |
| Macquarie Credit Agreement |
| Casinos Poland |
| UniCredit Loan |
| Century Downs |
| UniCredit Agreement |
| Total | ||||||
2020 |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||
2021 |
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| ||||||
2022 |
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| ||||||
2023 |
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| ||||||
2024 |
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| ||||||
Thereafter |
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| ||||||
Total |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | ||||||
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There is no set repayment schedule for the CPL credit facility, and the Company classifies it as short-term debt due to the nature of the agreements.
On December 6, 2019, certain subsidiaries of the Company (collectively, the “Tenant”) and certain subsidiaries of VICI PropCo (collectively, the “Landlord”) entered into the sale and leaseback transaction for the Acquired Casino properties. The Master Lease does not transfer control of the Acquired Casino properties to VICI Propco subsidiaries. The Company accounts for the transaction as a failed sale-leaseback financing obligation.
When cash proceeds are exchanged, a failed sale-leaseback financing obligation is equal to the proceeds received for the assets that are sold and then leased back. The value of the failed sale-leaseback financing obligations recognized in this transaction was determined to be the fair value of the leased real estate assets. In subsequent periods, a portion of the periodic payment under the Master Lease will be recognized as interest expense with the remainder of the payment reducing the failed sale-leaseback financing obligation using the effective interest method. The failed sale-leaseback obligations will not be reduced to less than the net book value of the leased real estate assets as of the end of the lease term, which is estimated to be $
The fair values of the real estate assets and the related failed sale-leaseback financing obligation were estimated based on the present value of the estimated future payments over the term plus renewal options of
The Master Lease provides for the lease of land, buildings, structures and other improvements on the land (including barges and riverboats), easements and similar appurtenances to the land and improvements relating to the operations of the leased properties. The Master Lease has an initial term of
The Master Lease has a triple-net structure, which requires the Tenant to pay substantially all costs associated with the Acquired Casino properties, including real estate taxes, insurance, utilities, maintenance and operational costs. The Master Lease contains certain covenants, including minimum capital improvement expenditures. The covenants under the Master Lease began on January 1, 2020; however, as a result of the casino closures in connection with the COVID-19 pandemic, the Landlord and the Tenant entered into an amendment to the Master Lease in May 2020 that, among other things, waived the Tenant’s capital improvement expenditure requirements for 2020 and deferred to not later than December 31, 2021 certain other expenditures contemplated in the underwriting of the Acquired Casino properties. The Company has provided a guarantee of the Tenant’s obligations under the Master Lease.
The rent payable under the Master Lease is comprised of “Base Rent” and “Variable Rent”. Base rent is:
An initial annual rent (the “Rent”) of approximately $
The Rent will escalate at a rate of
The Base Rent Escalator is subject to adjustment from and after the 6th year if the Minimum Rent Coverage Ratio (as defined in the Master Lease) is not satisfied.
Beginning in the 8th year of the lease term, Rent will be calculated as (i)
For the 11th year and thereafter of the initial lease term, the Base Rent will escalate annually as set forth above and the Variable Rent will be recalculated as set forth in the Master Lease.
The estimated future payments include the payments and adjustments to reflect estimated payments as described in the Master Lease, including an annual escalator of up to
Total payments and interest expense related to the Master Lease were $
The future payments related to the Master Lease financing obligation with the Landlord at June 30, 2020 are as follows.
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Amounts in thousands |
|
|
|
2020 |
| $ | |
2021 |
|
| |
2022 |
|
| |
2023 |
|
| |
2024 |
|
| |
Thereafter |
|
| |
Total payments |
|
| |
Less imputed interest |
|
| ( |
Residual Value |
|
| |
Total |
| $ | |
Litigation
Since 2011, the Polish Internal Revenue Service (“Polish IRS”) has conducted a series of tax audits of CPL to review the calculation and payment of personal income tax by CPL employees for periods ranging from 2007 to 2013. The Polish IRS has asserted that CPL should calculate, collect and remit to the Polish IRS personal income tax on tips received by CPL employees from casino customers and has prevailed in several court challenges by CPL. Through June 30, 2020, CPL has paid PLN
The balance of the potential liability on the Company’s condensed consolidated balance sheet for all open periods as of June 30, 2020 is PLN
In March 2020, the Company assessed the likelihood of collecting the portion of the liability that it had sought to collect from LOT Polish Airlines (“LOT”), which previously owned a
Income tax expense is recorded relative to the jurisdictions that recognize book earnings. For the six months ended June 30, 2020, the Company recognized income tax expense of $
For the six months ended June 30, 2020, the Company computed its effective tax rate using actual year to date information rather than a full year forecast to compute an annual effective tax rate. Based on current forecasts, which take into account a range of potential impacts from the COVID-19 pandemic, the Company’s effective tax rate is expected to be highly sensitive to changes in earnings. The extent of the effects of the COVID-19 pandemic on the Company and the casino industry at large is highly uncertain and will ultimately depend on future developments, including but not limited to, the duration and severity of the outbreak, future recurrences of the outbreak and the length of time it takes for normal economic and operating conditions to resume, if at all. Accordingly, the Company concluded that computing its effective tax rate using year to date actual results is its best estimate of tax expense for the six months ended June 30, 2020.
A number of items caused the effective income tax rate for the three and six months ended June 30, 2020 to differ from the US federal statutory income tax rate of
During the first quarter of 2020, the Company recorded valuation allowances on its net deferred tax assets related to CMR, resulting in $
The calculation of basic earnings per share considers only weighted average outstanding common shares in the computation. The calculation of diluted earnings per share gives effect to all potentially dilutive stock options. The calculation of diluted earnings per share is based upon the weighted average number of common shares outstanding during the period, plus, if dilutive, the assumed exercise of stock options using the treasury stock method. Weighted average shares outstanding for the three and six months ended June 30, 2020 and 2019 were as follows:
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|
|
| For the three months |
| For the six months | ||||||||
|
| ended June 30, |
| ended June 30, | ||||||||
Amounts in thousands |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Weighted average common shares, basic |
|
|
|
|
|
|
|
| ||||
Dilutive effect of stock options |
|
| — |
|
| — |
|
| — |
|
| |
Weighted average common shares, diluted |
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| ||||
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The following stock options are anti-dilutive and have not been included in the weighted average shares outstanding calculation:
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|
|
|
| For the three months |
| For the six months | ||||||||
|
| ended June 30, |
| ended June 30, | ||||||||
Amounts in thousands |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Stock options |
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| |
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| |
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| | |
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Fair Value Measurements
The Company follows fair value measurement authoritative accounting guidance for all assets and liabilities measured at fair value. That authoritative accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Market or observable inputs are the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The fair value hierarchy for grouping these assets and liabilities is based on the significance level of the following inputs:
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable
Level 3 – significant inputs to the valuation model are unobservable
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were
Recurring Fair Value Measurements
The Company determined the fair value of its interest rate swap agreements based on the notional amount of the swaps and the forward rate CAD-CDOR curve provided by Bloomberg and zero-coupon Canadian spot rates as of the valuation date. The Company classified these instruments as Level 2 because the inputs into the valuation model can be corroborated utilizing observable benchmark market rates at commonly quoted intervals. The interest rate swap agreements ended in December 2019 when the Company’s BMO Credit Agreement was repaid.
Non-Recurring Fair Value Measurements
The Company applies the provisions of the fair value measurement standard to its non-recurring, non-financial assets and liabilities measured at fair value. During 2020, the Company wrote-down goodwill and intangible assets at certain properties based on forecast losses and cash flows at these reporting units resulting from the triggering events caused by COVID-19 and, as a result, charged $
The Company applied the acquisition method of accounting for the Acquisition. Identifiable assets and liabilities assumed were recognized and measured at the fair value as of the Acquisition date. The valuation of intangible assets was determined using an income approach methodology. The Company’s key assumptions include projected future revenues, customer attrition rates and discount rates. See Note 3 for more information about the Acquisition and accounting for the Acquisition.
Long-Term Debt – The carrying value of the Macquarie Credit Agreement approximates fair value based on recently negotiated terms and the variable interest paid on the obligations. The carrying value of the UniCredit Agreement and CPL credit agreements approximate fair value based on the variable interest paid on obligations. The carrying values of the CRM and CPL short-term lines of credit approximate fair value due to the short-term nature of the agreements and recently negotiated terms. The estimated fair values of the outstanding balances under the Macquarie Credit Agreement, CPL credit facility, CPL credit agreements, and UniCredit Loan Agreement are designated as Level 2 measurements in the fair value hierarchy based on quoted prices in active markets for similar liabilities. The carrying values of the Company’s finance lease obligations approximate fair value based on the similar terms and conditions currently available to the Company in the marketplace for similar financings.
Other Estimated Fair Value Measurements – The estimated fair value of the Company’s other assets and liabilities, such as cash and cash equivalents, accounts receivable, inventory, accrued payroll and accounts payable, have been determined to approximate carrying value based on the short-term nature of those financial instruments. As of June 30, 2020 and December 31, 2019, the Company had
Derivative Instruments Reporting
In April 2016, the Company began using interest rate swaps to mitigate the risk of variable interest rates under its BMO Credit Agreement. The interest rate swaps were repaid in December 2019 when the BMO Credit Agreement was repaid. The interest rate swaps were not designated as accounting hedges. The interest rate swaps reset monthly, and the difference to be paid or received under the terms of the interest rate swap agreement was accrued as interest rates changed and recognized as an adjustment to interest expense for the related debt. The Company recognized $
The Company derives revenue and other income from contracts with customers and financial instruments. A breakout of the Company’s derived revenue and other income is presented in the table below.
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| For the three months |
| For the six months | ||||||||
|
| ended June 30, |
| ended June 30, | ||||||||
Amounts in thousands |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Revenue from contracts with customers |
| $ |
| $ |
| $ |
| $ | ||||
Interest income |
|
|
|
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| ||||
Cost recovery income |
|
|
|
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|
| ||||
Dividend income |
|
| — |
|
|
|
| — |
|
| ||
Total revenue |
| $ |
| $ |
| $ |
| $ |
The Company operates gaming establishments as well as related lodging, restaurant, horse racing (including off-track betting) and entertainment facilities around the world. The Company generates revenue at its properties by providing the following types of products and services: gaming, hotel, food and beverage, and pari-mutuel and other. Disaggregation of the Company’s revenue from contracts with customers by type of revenue and reportable segment is presented in the tables below.
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| For the three months ended June 30, 2020 | |||||||||||||
Amounts in thousands |
| United States |
|
| Canada |
|
| Poland |
|
| Corporate and Other |
|
| Total |
Gaming | $ |
| $ |
| $ |
| $ |
| $ | |||||
Hotel |
|
|
| — |
|
| — |
|
| — |
|
| ||
Food and beverage |
|
|
|
|
|
|
| — |
|
| ||||
Other |
|
|
|
|
|
|
|
|
| |||||
Net operating revenue | $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended June 30, 2019 | |||||||||||||
Amounts in thousands |
| United States |
|
| Canada |
|
| Poland |
|
| Corporate and Other |
|
| Total |
Gaming | $ |
| $ |
| $ |
| $ |
| $ | |||||
Hotel |
|
|
|
|
| — |
|
| — |
|
| |||
Food and beverage |
|
|
|
|
|
|
|
|
| |||||
Other |
|
|
|
|
|
|
|
|
| |||||
Net operating revenue | $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the six months ended June 30, 2020 | |||||||||||||
Amounts in thousands |
| United States |
|
| Canada |
|
| Poland |
|
| Corporate and Other |
|
| Total |
Gaming | $ |
| $ |
| $ |
| $ |
| $ | |||||
Hotel |
|
|
|
|
| — |
|
| — |
|
| |||
Food and beverage |
|
|
|
|
|
|
|
|
| |||||
Other |
|
|
|
|
|
|
|
|
| |||||
Net operating revenue | $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the six months ended June 30, 2019 | |||||||||||||
Amounts in thousands |
| United States |
|
| Canada |
|
| Poland |
|
| Corporate and Other |
|
| Total |
Gaming | $ |
| $ |
| $ |
| $ |
| $ | |||||
Hotel |
|
|
|
|
| — |
|
| — |
|
| |||
Food and beverage |
|
|
|
|
|
|
|
|
| |||||
Other |
|
|
|
|
|
|
|
|
| |||||
Net operating revenue | $ |
| $ |
| $ |
| $ |
| $ |
For the majority of the Company’s contracts with customers, payment is made in advance of the services and contracts are settled on the same day the sale occurs with revenue recognized on the date of the sale. For contracts that are not settled, a contract liability is created.
The amount of revenue recognized that was included in the opening contract liability balance was less than $
|
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|
|
|
|
|
|
| For the three months |
| For the three months | ||||||||
|
| ended June 30, 2020 |
| ended June 30, 2019 | ||||||||
Amounts in thousands |
| Receivables |
| Contract Liabilities |
| Receivables |
| Contract Liabilities | ||||
Opening |
| $ |
|
|
| $ |
| $ | ||||
Closing |
|
|
|
|
|
|
|
| ||||
Increase/(decrease) |
| $ | ( |
| $ |
| $ | ( |
| $ | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the six months |
| For the six months | ||||||||
|
| ended June 30, 2020 |
| ended June 30, 2019 | ||||||||
Amounts in thousands |
| Receivables |
| Contract Liabilities |
| Receivables |
| Contract Liabilities | ||||
Opening |
| $ |
|
|
| $ |
| $ | ||||
Closing |
|
|
|
|
|
|
|
| ||||
Increase/(decrease) |
| $ | ( |
| $ |
| $ |
| $ |
Receivables are included in accounts receivable and contract liabilities are included in accrued liabilities on the Company’s condensed consolidated balance sheets. In March 2020, the Company wrote-down its receivables related to MCE based on assessments made due to COVID-19 and future cash flows of MCE, and as a result, charged $
Substantially all of the Company’s contracts and contract liabilities have an original duration of
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The Company adopted ASU 2016-02 with a date of initial application of January 1, 2019. The Company applied ASU 2016-02 by recognizing (i) a $
When adopting the leasing standard, the Company made the following policy elections:
The Company elected the practical expedient to account for the lease and non-lease components as a single lease component for all asset classes;
The Company elected the short-term lease measurement and recognition exemption and did not establish ROU assets or lease liabilities for operating leases with terms of 12 months or less;
The Company used its original assumptions for operating leases entered into prior to adoption, electing not to use the hindsight practical expedient;
The Company elected to use the package of practical expedients for transition and did not reassess (i) whether expired or existing contracts were leases or contained leases, (ii) the classification of its existing leases, or (iii) initial direct costs for existing leases; and
The Company elected not to evaluate existing or expired land easements under the leasing standard prior to the date of adoption.
The Company determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate in each of the jurisdictions in which its subsidiaries operate to calculate the present value of lease payments. Lease terms may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the Company will exercise those options. Operating lease expense is recorded on a straight-line basis over the lease term.
The Company accounts for lease agreements with lease and non-lease components as a single lease component for all asset classes. The Company does not establish ROU assets or lease liabilities for operating leases with terms of 12 months or less.
The Company’s operating and finance leases include land, casino space, corporate offices, and gaming and other equipment. The leases have remaining lease terms of
The components of lease expense were as follows:
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|
| For the three months ended |
| For the six months ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
Amounts in thousands |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Operating lease expense |
| $ | |
| $ | |
| $ | |
| $ | |
|
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|
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Finance lease expense: |
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Amortization of right-of-use assets |
| $ | |
| $ | |
| $ | |
| $ | |
Interest on lease liabilities |
|
| |
|
| |
|
| |
|
| |
Total finance lease expense |
| $ | |
| $ | |
| $ | |
| $ | |
|
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|
|
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Short-term lease expense |
| $ | |
| $ | |
| $ | |
| $ | |
|
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|
|
|
|
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Variable lease expense |
| $ | ( |
| $ | |
| $ | |
| $ | |
Variable lease expense relates primarily to rates based on a percentage of gaming revenue, changes in indexes that are excluded from the lease liability and fluctuations in foreign currency related to leases in Poland.
Supplemental cash flow information related to leases was as follows:
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| For the six months | ||||
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| ended June 30, | ||||
Amounts in thousands |
| 2020 |
| 2019 | ||
Cash paid for amounts included in the measurement of lease liabilities: |
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|
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Operating cash flows from finance leases |
| $ | — |
| $ | |
Operating cash flows from operating leases |
|
| |
|
| |
Financing cash flows from finance leases |
|
| |
|
| |
Supplemental balance sheet information related to leases was as follows:
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| As of |
| As of | ||
Amounts in thousands |
| June 30, 2020 |
| December 31, 2019 | ||
Operating leases |
|
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Leased right-of-use assets, net |
| $ | |
| $ | |
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Current portion of operating lease liabilities |
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| |
|
| |
Operating lease liabilities, net of current portion |
|
| |
|
| |
Total operating lease liabilities |
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| |
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| |
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Finance leases |
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Finance lease right-of-use assets, gross |
|
| |
|
| |
Accumulated depreciation |
|
| ( |
|
| ( |
Property and equipment, net |
|
| |
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| |
|
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|
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Current portion of finance lease liabilities |
|
| |
|
| |
Finance lease liabilities, net of current portion |
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| |
|
| |
Total finance lease liabilities |
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| |
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Weighted-average remaining lease term |
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Operating leases |
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Finance leases |
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Weighted-average discount rate |
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Operating leases |
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| ||
Finance leases |
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| ||
|
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|
|
Maturities of lease liabilities as of June 30, 2020 were as follows:
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Amounts in thousands |
|
| Operating leases |
| Finance leases | |
2020 |
| $ | |
| $ | |
2021 |
|
| |
|
| |
2022 |
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| |
|
| |
2023 |
|
| |
|
| |
2024 |
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| |
|
| |
Thereafter |
|
| |
|
|
|
Total lease payments |
|
| |
|
| |
Less imputed interest |
|
| ( |
|
| ( |
Total |
| $ | |
| $ | |
The Company reports its financial performance in
The table below provides information about the aggregation of the Company’s reporting units and operating segments into reportable segments:
|
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Reportable Segment | Operating Segment | Reporting Unit |
United States | Colorado | |
|
| |
| West Virginia | |
| Missouri | |
|
| |
Canada | Edmonton | |
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| |
|
| |
| Calgary | |
|
| |
|
| |
Poland | Poland | |
Corporate and Other | Corporate and Other | |
|
|
The Company’s chief operating decision maker is a management function comprised of two individuals. These two individuals are the Company’s Co-Chief Executive Officers. The Company’s chief operating decision makers and management utilize Adjusted EBITDA as the primary profit measure for its reportable segments. Adjusted EBITDA is a non-US GAAP measure defined as net earnings (loss) attributable to Century Casinos, Inc. shareholders before interest expense (income), net, income taxes (benefit), depreciation, amortization, non-controlling interest (earnings) losses and transactions, pre-opening expenses, acquisition costs, non-cash stock-based compensation charges, asset impairment costs, (gain) loss on disposition of fixed assets, discontinued operations, (gain) loss on foreign currency transactions and other, gain on business combination and certain other one-time transactions. Expense related to the Master Lease is included in the interest expense (income), net line item. Intercompany transactions consisting primarily of management and royalty fees and interest, along with their related tax effects, are excluded from the presentation of net earnings (loss) and Adjusted EBITDA reported for each segment. Non-cash stock-based compensation expense is presented under Corporate and Other in the tables below as the expense is not allocated to reportable segments when reviewed by the Company’s chief operating decision makers.
The following tables provide information regarding the Company’s segments:
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| For the three months ended June 30, 2020 | ||||||||||||||
Amounts in thousands |
| United States |
| Canada |
| Poland |
| Corporate and Other |
| Total | |||||
Net operating revenue (1) |
| $ |
| $ |
| $ |
| $ |
| $ | |||||
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(Loss) earnings before income taxes |
| $ | ( |
| $ | ( |
| $ | ( |
| $ |
| $ | ( | |
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Net (loss) earnings attributable to Century Casinos, Inc. shareholders |
| $ | ( |
| $ | ( |
| $ | ( |
| $ |
| $ | ( | |
Interest expense (income), net (2) |
|
|
|
|
|
| ( |
|
|
|
| ||||
Income (benefit) taxes |
|
| — |
|
| ( |
|
| ( |
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|
| ||
Depreciation and amortization |
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| |||||
Net earnings (loss) attributable to non-controlling interests |
|
| — |
|
|
|
| ( |
|
| — |
|
| ( | |
Non-cash stock-based compensation |
|
| — |
|
| — |
|
| — |
|
|
|
| ||
Loss (gain) on foreign currency transactions, cost recovery income and other |
|
|
|
|
|
| ( |
|
| ( |
|
| ( | ||
(Gain) on disposition of fixed assets |
|
| — |
|
| ( |
|
| — |
|
| — |
|
| ( |
Acquisition costs |
|
| — |
|
| — |
|
| — |
|
|
|
| ||
Adjusted EBITDA |
| $ |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
(1)
(2)
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|
|
| For the three months ended June 30, 2019 | ||||||||||||||
Amounts in thousands |
| United States |
| Canada |
| Poland |
| Corporate and Other |
| Total | |||||
Net operating revenue (1) |
| $ |
| $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
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|
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|
|
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Earnings (loss) before income taxes |
| $ |
| $ |
| $ |
| $ | ( |
| $ | ||||
|
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|
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|
|
|
|
|
Net earnings (loss) attributable to Century Casinos, Inc. shareholders |
| $ |
| $ |
| $ |
| $ | ( |
| $ | ( | |||
Interest expense (income), net (2) |
|
| — |
|
|
|
|
|
|
|
| ||||
Income taxes (benefit) |
|
|
|
|
|
|
|
| ( |
|
| ||||
Depreciation and amortization |
|
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|
| |||||
Net earnings attributable to non-controlling interests |
|
| — |
|
|
|
|
|
|
|
| ||||
Non-cash stock-based compensation |
|
| — |
|
| — |
|
| — |
|
|
|
| ||
(Gain) loss on foreign currency transactions and cost recovery income |
|
| — |
|
| ( |
|
| ( |
|
|
|
| ( | |
Loss on disposition of fixed assets |
|
|
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|
|
|
|
| |||||
Acquisition costs |
|
| — |
|
| — |
|
| — |
|
|
|
| ||
Adjusted EBITDA |
| $ |
| $ |
| $ |
| $ | ( |
| $ |
(1)
(2)
|
|
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|
|
|
| For the six months ended June 30, 2020 | ||||||||||||||
Amounts in thousands |
| United States |
| Canada |
| Poland |
| Corporate and Other |
| Total | |||||
Net operating revenue (1) |
| $ |
| $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Loss before income taxes |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
|
|
|
|
|
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|
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|
|
Net loss attributable to Century Casinos, Inc. shareholders |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
Interest expense (income), net (2) |
|
|
|
|
|
|
|
|
|
| |||||
Income taxes (benefit) |
|
|
|
|
|
| ( |
|
|
|
| ||||
Depreciation and amortization |
|
|
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|
|
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|
|
| |||||
Net earnings (loss) attributable to non-controlling interests |
|
| — |
|
|
|
| ( |
|
| — |
|
| ( | |
Non-cash stock-based compensation |
|
| — |
|
| — |
|
| — |
|
|
|
| ||
Loss (gain) on foreign currency transactions, cost recovery income and other |
|
|
|
|
|
|
|
| ( |
|
| ||||
(Gain) loss on disposition of fixed assets |
|
| — |
|
| ( |
|
|
|
|
|
| ( | ||
Acquisition costs |
|
| — |
|
| — |
|
| — |
|
|
|
| ||
Adjusted EBITDA |
| $ |
| $ |
| $ | ( |
| $ | ( |
| $ |
(1)Net operating revenue for Corporate and Other primarily relates to CCB, the Company’s cruise ship operations and consulting agreements.
(2)
|
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|
|
|
| For the six months ended June 30, 2019 | ||||||||||||||
Amounts in thousands |
| United States |
| Canada |
| Poland |
| Corporate and Other |
|
| Total | ||||
Net operating revenue (1) |
| $ |
| $ |
| $ |
| $ |
| $ | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
| $ |
| $ |
| $ |
| $ | ( |
| $ | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Century Casinos, Inc. shareholders |
| $ |
| $ |
| $ |
| $ | ( |
| $ | ||||
Interest expense (income), net (2) |
|
| — |
|
|
|
|
|
|
|
| ||||
Income taxes (benefit) |
|
|
|
|
|
|
|
| ( |
|
| ||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
| |||||
Net earnings (loss) attributable to non-controlling interests |
|
| — |
|
|
|
|
|
| ( |
|
| |||
Non-cash stock-based compensation |
|
| — |
|
| — |
|
| — |
|
|
|
| ||
Gain on foreign currency transactions and cost recovery income |
|
| — |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
Loss (gain) on disposition of fixed assets |
|
|
|
| ( |
|
|
|
|
|
| ||||
Acquisition costs |
|
| — |
|
| — |
|
| — |
|
|
|
| ||
Pre-opening expenses |
|
| — |
|
|
|
| — |
|
| — |
|
| ||
Adjusted EBITDA |
| $ |
| $ |
| $ |
| $ | ( |
| $ |
(1)Net operating revenue for Corporate and Other primarily relates to CCB, the Company’s cruise ship operations and consulting agreements.
(2)
The Company evaluated subsequent events and accounting and disclosure requirements related to including material subsequent events in its condensed consolidated financial statements and related notes.
On August 5, 2020, the Company announced that it had entered into a definitive agreement to sell the casino operations of Century Casino Calgary for CAD
The Company recorded a loss of $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements, Business Environment and Risk Factors
This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. In addition, Century Casinos, Inc. (together with its subsidiaries, the “Company”) may make other written and oral communications from time to time that contain such statements. Forward-looking statements include statements as to industry trends and future expectations of the Company and other matters that do not relate strictly to historical facts and are based on certain assumptions by management at the time such statements are made. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. These statements are based on the beliefs and assumptions of the management of the Company based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks described in the section entitled “Risk Factors” under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2019, in Item 8.01 in our Current Report on Form 8-K filed on May 8, 2020, as well as under Part II, Item 1A of this quarterly report on Form 10-Q. We caution the reader to carefully consider such factors. Furthermore, such forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
References in this item to “we,” “our,” or “us” are to the Company and its subsidiaries on a consolidated basis unless the context otherwise requires. The term “USD” refers to US dollars, the term “CAD” refers to Canadian dollars, the term “PLN” refers to Polish zloty and the term “GBP” refers to British pounds. Certain terms used in this Item 2 without definition are defined in Item 1.
Amounts presented in this Item 2 are rounded. As such, rounding differences could occur in period over period changes and percentages reported throughout this Item 2.
EXECUTIVE OVERVIEW
Overview
Since our inception in 1992, we have been primarily engaged in developing and operating gaming establishments and related lodging, restaurant and entertainment facilities. Our primary source of revenue is from the net proceeds of our gaming machines and tables, with ancillary revenue generated from hotel, restaurant, horse racing (including off-track betting), bowling and entertainment facilities that are in most instances a part of the casinos.
We view each market in which we operate as a separate operating segment and each casino within those markets as a reporting unit. We aggregate all operating segments into three reportable segments based on the geographical locations in which our casinos operate: United States, Canada and Poland. We have additional business activities including concession agreements, management agreements, consulting agreements and certain other corporate and management operations that we report as Corporate and Other.
The table below provides information about the aggregation of our reporting units and operating segments into reportable segments. The reporting units, except for Century Downs Racetrack and Casino and Casinos Poland, are owned, operated and managed through wholly-owned subsidiaries. Our ownership and operation of Century Downs Racetrack and Casino and Casinos Poland are discussed below.
|
|
|
Reportable Segment | Operating Segment | Reporting Unit |
United States | Colorado | Century Casino & Hotel - Central City |
|
| Century Casino & Hotel - Cripple Creek |
| West Virginia | Mountaineer Casino, Racetrack & Resort |
| Missouri | Century Casino Cape Girardeau |
|
| Century Casino Caruthersville |
Canada | Edmonton | Century Casino & Hotel - Edmonton |
|
| Century Casino St. Albert |
|
| Century Mile Racetrack and Casino |
| Calgary | Century Casino Calgary |
|
| Century Downs Racetrack and Casino |
|
| Century Bets! Inc. |
Poland | Poland | Casinos Poland |
Corporate and Other | Corporate and Other | Cruise Ships & Other |
|
| Corporate Other |
CBS operates the pari-mutuel off-track betting network in Southern Alberta, Canada. Prior to August 2019, we had a 75% controlling financial interest in CBS through our wholly-owned subsidiary CRM. In August 2019, we purchased the 25% non-controlling financial interest from Rocky Mountain Turf Club for CAD 0.2 million ($0.2 million based on the exchange rate in effect on August 5, 2019), resulting in CBS becoming a wholly-owned subsidiary.
On March 17, 2020, we announced that we had permanently closed CCB. CCB voluntarily surrendered its casino gaming license on April 28, 2020 and entered into a creditors voluntary liquidation on May 6, 2020. For additional information related to CCB, see Note 1, “Description of Business and Basis of Presentation,” to our condensed consolidated financial statements in Part I, Item 1 of this report.
We have controlling financial interests through our subsidiary CRM in the following reporting units:
We have a 66.6% ownership interest in CPL and we consolidate CPL as a majority-owned subsidiary for which we have a controlling financial interest. Polish Airports owns the remaining 33.3% of CPL. We account for and report the 33.3% Polish Airports ownership interest as a non-controlling financial interest. CPL has been in operation since 1989. As of June 30, 2020, CPL owned eight casinos throughout Poland with a total of 526 slot machines and 119 tables. The following table summarizes information about CPL’s casinos as of June 30, 2020.
|
|
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|
|
City | Location | License Expiration | Number of Slots | Number of Tables |
Warsaw | Marriott Hotel | July 2024 | 70 | 37 |
Warsaw | Hilton Hotel | September 2022 | 70 | 26 |
Warsaw | LIM Center | June 2025 | 63 | 4 |
Bielsko-Biala | Hotel President | October 2023 | 48 | 5 |
Katowice | Park Inn by Radisson | October 2023 | 70 | 14 |
Wroclaw | Double Tree Hilton Hotel | November 2023 | 70 | 18 |
Krakow | Dwor Kosciuszko Hotel | May 2024 | 70 | 5 |
Lodz | Manufaktura Entertainment Complex | June 2024 | 65 | 10 |
Casino licenses are granted for six years. When a casino license expires, the Polish Minister of Finance notifies the public of its availability, and interested parties can submit an application for the casino license. Following approval of a casino license by the Minister of Finance, there is a period in which applicants can appeal the decision.
We have a 75% ownership interest in CDR, and we consolidate CDR as a majority-owned subsidiary for which we have a controlling financial interest. We account for and report the remaining 25% ownership interest in CDR as a non-controlling financial interest. CDR operates Century Downs Racetrack and Casino, a REC in Balzac, a north metropolitan area of Calgary, Alberta, Canada. CDR is the only horse racetrack in the Calgary area and is located less than one-mile north of the city limits of Calgary and 4.5 miles from the Calgary International Airport.
The following agreements make up the reporting unit Cruise Ships & Other in the Corporate and Other reportable segment:
As of June 30, 2020, we had a concession agreement with TUI Cruises for one ship-based casino. Our concession agreements for four of the TUI Cruises ship-based casinos that we operated prior to their COVID-19 related closures in March 2020 ended on May 12, 2020. We are negotiating a concession agreement with TUI Cruises to operate three ship-based casinos through May 2021.
Through our subsidiary CRM, we have a 7.5% ownership interest in MCE. In addition, CRM provides advice to MCE on casino matters pursuant to a consulting agreement for a service fee consisting of a fixed fee plus a percentage of MCE’s EBITDA. In March 2020, due to the impact of COVID-19 on MCE, we impaired the $1.0 million MCE investment and wrote-down a $0.3 million receivable related to MCE. For additional information related to MCE, see Note 4, “Investments,” to our condensed consolidated financial statements included in Part I, Item 1 of this report.
Through our subsidiary CRM, we had a 51% ownership interest in GHL. We sold our interest in GHL to the unaffiliated shareholders of GHL in May 2019 for a $0.7 million non-interest bearing promissory note. We recognized a loss on the sale of this investment of less than ($0.1) million in general and administrative expenses on our condensed consolidated statement of earnings for the three and six months ended June 30, 2019. The sale of our equity interest in GHL also ended our equity interest in MCL. For additional information related to GHL and MCL, see Note 1, “Description of Business and Basis of Presentation,” and Note 4, “Investments,” to our condensed consolidated financial statements in Part I, Item 1 of this report.
Recent Developments Related to COVID-19
In late 2019, an outbreak of COVID-19 was identified in China and has since spread throughout much of the world. The COVID-19 pandemic has had an adverse effect on our first and second quarter 2020 results of operations and financial condition, and we expect the situation will continue to have an adverse impact on our results for the remainder of 2020. The duration and impact of the COVID-19 pandemic otherwise remains uncertain. Between March 13, 2020 and March 17, 2020, we closed all of our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19. Our Polish locations reopened on May 18, 2020 and our North American operations reopened between June 1, 2020 and June 17, 2020. The reopening approaches varied, with casinos in some jurisdictions reopening fully and others permitted to operate with reduced levels of gaming space or without table games. In addition, some locations are operating with limited restaurant operating hours or continued closure of restaurants, requirements to wear face masks, including the potential to require guests to wear face masks, increased frequency of disinfecting surfaces and other measures to account for varying levels of demand.
Temporary closures of all our facilities between March 2020 and June 2020 due to COVID-19 negatively impacted results for the three and six months ended June 30, 2020. We estimate that net operating revenue and Adjusted EBITDA for the six months ended June 30, 2020 were adversely impacted by approximately $91.3 million and $34.3 million, respectively, due to these closures. We estimate that the net cash outflows related to operations during the time they were fully suspended were, on average, approximately $8.0 million per month. In March 2020, as a proactive measure to increase our cash position and preserve financial flexibility in light of current uncertainty resulting from the COVID-19 pandemic, we borrowed an additional $17.4 million on our revolving credit facilities with Macquarie Capital (“Macquarie”) and UniCredit Bank Austria AG (“UniCredit”).
During the temporary closures of our casinos, hotels and other facilities, we took actions to reduce operating costs, including furloughing most of our personnel, implementing reduced work weeks for other personnel and temporarily reducing salaries to senior management on a voluntary basis. During the closures, we continued to pay benefits to our United States and Canadian employees, including part time employees. In Poland, all employees were paid reduced salaries based on local employment laws. We continue to operate with reduced spending on most advertising and marketing costs as well as implementing cost saving initiatives that are intended to eliminate approximately $13.7 million of non-labor operating costs in 2020. We intend to defer or eliminate approximately $2.2 million of discretionary capital projects for the remainder of 2020 in order to proactively address our capital spending for 2020. Additionally, we negotiated arrangements with some of our contractual counterparties, such as vendors and lessors, to modify the timing of certain contractual payments.
We cannot predict the negative impacts that the failure to suppress the spread of COVID-19 will have on our consumer demand, workforce, suppliers, contractors and other partners and, although all locations have reopened, whether future closures will be required. Such closures have had and will continue to have a material impact on us. While the severity and duration of such business impacts cannot currently be estimated, the effects of COVID-19 and the requirements of health and safety protocols are expected to continue to have a material impact on us.
For additional information, see “Liquidity and Capital Resources – Potential Sources of Liquidity and Short-Term Liquidity.”
Acquisition
On December 6, 2019, we completed the Acquisition of the operations of Cape Girardeau, Caruthersville and Mountaineer from Eldorado Resorts, Inc. for an aggregate purchase price of approximately $111.7 million. Immediately prior to the Acquisition, the real estate assets underlying the Acquired Casinos were sold to VICI PropCo, and we and VICI PropCo subsidiaries entered into a triple net Master Lease for the three Acquired Casino properties. The Master Lease has an initial annual rent of approximately $25.0 million and an initial term of 15 years, with four five year renewal options.
Additional Projects Under Development
In August 2017, we announced that, together with the owner of the Hamilton Princess Hotel & Beach Club in Hamilton, Bermuda, we had submitted a license application to the Bermudan government for a casino at the Hamilton Princess Hotel & Beach Club. The casino would feature approximately 200 slot machines, 17 live table games, one or more electronic table games and a high limit area and salon privé. CRM entered into a long-term management agreement with the owner of the hotel to manage the operations of the casino and receive a management fee if the license is awarded. CRM will also provide a $5.0 million loan for the purchase of casino equipment if the license is awarded. In September 2017, the Bermuda Casino Gaming Commission granted a provisional casino gaming license, which is subject to certain conditions and approvals including the adoption of certain rules and regulations by the Parliament of Bermuda. The Parliament of Bermuda has not taken action on this project, and we do not currently expect this project to go forward.
Presentation of Foreign Currency Amounts - The average exchange rates to the US dollar used to translate balances during each reported period are as follows:
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| For the six months |
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| ended June 30, |
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Average Rates |
| 2020 |
| 2019 |
| % Change |
| 2020 |
| 2019 |
| % Change |
Canadian dollar (CAD) |
| 1.3863 |
| 1.3376 |
| (3.6%) |
| 1.3646 |
| 1.3335 |
| (2.3%) |
Euros (EUR) |
| 0.9085 |
| 0.8898 |
| (2.1%) |
| 0.9080 |
| 0.8853 |
| (2.6%) |
Polish zloty (PLN) |
| 4.0959 |
| 3.8090 |
| (7.5%) |
| 4.0090 |
| 3.7980 |
| (5.6%) |
British pound (GBP) |
| 0.8060 |
| 0.7782 |
| (3.6%) |
| 0.7938 |
| 0.7732 |
| (2.7%) |
Source: Pacific Exchange Rate Service |
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We recognize in our statement of earnings foreign currency transaction gains or losses resulting from the translation of casino operations and other transactions that are denominated in a currency other than US dollars. Our casinos in Canada and Poland represent a significant portion of our business, and the revenue generated and expenses incurred by these operations are generally denominated in Canadian dollars and Polish zloty. A decrease in the value of these currencies in relation to the value of the US dollar would decrease the earnings from our foreign operations when translated into US dollars. An increase in the value of these currencies in relation to the value of the US dollar would increase the earnings from our foreign operations when translated into US dollars.
DISCUSSION OF RESULTS
Century Casinos, Inc. and Subsidiaries
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| For the three months |
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| For the six months |
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| ended June 30, |
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| % |
| ended June 30, |
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| % | ||||||||||
Amounts in thousands |
|
| 2020 |
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| 2019 |
|
| Change |
| Change |
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| 2020 |
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| 2019 |
|
| Change |
| Change |
Gaming Revenue |
| $ | 29,922 |
| $ | 41,986 |
| $ | (12,064) |
| (28.7%) |
| $ | 104,215 |
| $ | 79,326 |
| $ | 24,889 |
| 31.4% |
Hotel Revenue |
|
| 476 |
|
| 494 |
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| (18) |
| (3.6%) |
|
| 2,292 |
|
| 940 |
|
| 1,352 |
| 143.8% |
Food and Beverage Revenue |
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| 1,151 |
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| 5,054 |
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| (3,903) |
| (77.2%) |
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| 7,703 |
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| 8,805 |
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| (1,102) |
| (12.5%) |
Other Revenue |
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| 4,554 |
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| 4,911 |
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| (357) |
| (7.3%) |
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| 9,550 |
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| 8,986 |
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| 564 |
| 6.3% |
Net Operating Revenue |
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| 36,103 |
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| 52,445 |
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| (16,342) |
| (31.2%) |
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| 123,760 |
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| 98,057 |
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| 25,703 |
| 26.2% |
Gaming Expenses |
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| (16,482) |
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| (21,718) |
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| (5,236) |
| (24.1%) |
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| (58,525) |
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| (41,284) |
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| 17,241 |
| 41.8% |
Hotel Expenses |
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| (254) |
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| (187) |
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| 67 |
| 35.8% |
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| (978) |
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| (365) |
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| 613 |
| 167.9% |
Food and Beverage Expenses |
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| (1,468) |
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| (4,550) |
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| (3,082) |
| (67.7%) |
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| (8,138) |
|
| (8,480) |
|
| (342) |
| (4.0%) |
General and Administrative Expenses |
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| (12,451) |
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| (20,963) |
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| (8,512) |
| (40.6%) |
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| (41,986) |
|
| (37,015) |
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| 4,971 |
| 13.4% |
Impairment - Goodwill and Intangible Assets |
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| (1,157) |
|
| — |
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| 1,157 |
| 100.0% |
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| (35,121) |
|
| — |
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| 35,121 |
| 100.0% |
Total Operating Costs and Expenses |
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| (38,217) |
|
| (49,861) |
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| (11,644) |
| (23.4%) |
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| (157,647) |
|
| (92,012) |
|
| 65,635 |
| 71.3% |
Loss from Equity Investment |
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| — |
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| 14 |
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| (14) |
| (100.0%) |
|
| — |
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| (1) |
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| 1 |
| 100.0% |
(Loss) Earnings from Operations |
|
| (2,114) |
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| 2,598 |
|
| (4,712) |
| (181.4%) |
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| (33,887) |
|
| 6,044 |
|
| (39,931) |
| (660.7%) |
Non-Controlling Interest |
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| 590 |
|
| (923) |
|
| (1,513) |
| (163.9%) |
|
| 395 |
|
| (1,578) |
|
| (1,973) |
| (125.0%) |
Net (Loss) Earnings Attributable to Century Casinos, Inc. Shareholders |
|
| (12,607) |
|
| (565) |
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| (12,042) |
| (2131.3%) |
|
| (58,463) |
|
| 503 |
|
| (58,966) |
| (11722.9%) |
Adjusted EBITDA (1) |
| $ | (1,762) |
| $ | 6,709 |
| $ | (8,471) |
| (126.3%) |
| $ | 7,822 |
| $ | 13,412 |
| $ | (5,590) |
| (41.7%) |
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(Loss) Earnings Per Share Attributable to Century Casinos, Inc. Shareholders |
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Basic (Loss) Earnings Per Share |
| $ | (0.43) |
| $ | (0.02) |
| $ | (0.41) |
| (2050.0%) |
| $ | (1.98) |
| $ | 0.02 |
| $ | (2.00) |
| (10000.0%) |
Diluted (Loss) Earnings Per Share |
| $ | (0.43) |
| $ | (0.02) |
| $ | (0.41) |
| (2050.0%) |
| $ | (1.98) |
| $ | 0.02 |
| $ | (2.00) |
| (10000.0%) |
(1)For a discussion of Adjusted EBITDA and reconciliation of Adjusted EBITDA to net earnings attributable to Century Casinos, Inc. shareholders, see “Non-US GAAP Measures – Adjusted EBITDA” below.
Items impacting comparability of the results include the following:
COVID-19
Closures of all our facilities due to COVID-19 had a significant negative impact on our results for the three and six months ended June 30, 2020. A discussion of the estimated impact of COVID-19 on our reportable segments is presented below.
Below is a summary of the closures in each operating segment and the percentage of the gaming floors that were open upon reopening:
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Operating Segment | Closure Date | Reopen Date | Gaming Floor Open |
Colorado | March 17 | June 15 and June 17 | 77% (1) |
Missouri | March 17 | June 1 | 83% |
West Virginia | March 17 | June 5 | 48% |
Edmonton | March 17 | June 13 | 26% (2) |
Calgary | March 17 | June 13 | 28% (3) |
Poland | March 13 | May 18 | 100% |
(1)CRC’s gaming floor is fully open. CTL’s floor is 60% open due to a county variance requiring every other machine to be powered off. No table games are open in Colorado.
(2)Barriers put in place in early July 2020 allowed us to reopen an additional 29% of our gaming floors at these properties.
(3)Barriers put in place in early July 2020 allowed us to reopen an additional 20% of our gaming floors at these properties.
We impaired goodwill and intangible assets in the three and six months ended June 30, 2020 due to quantitative and qualitative impairment analysis performed related to the triggering events caused by COVID 19. We impaired $30.7 million in the United States segment and $3.4 million in the Canada segment.
We impaired the $1.0 million MCE investment and wrote-down a $0.3 million receivable related to MCE in the Corporate and Other segment due to assessments made related to the impact of COVID-19 on MCE in the six months ended June 30, 2020.
We recorded valuation allowances on our net deferred tax assets in the United States and Canada segments in the six months ended June 30, 2020 which resulted in $1.0 million and $1.5 million of tax expense in the United States and Canada segments, respectively. In addition, for the three and six months ended June 30, 2020, we recorded a valuation allowance on our net deferred tax assets at CRM that resulted in $1.1 million of tax expense in the Corporate and Other segment.
Results for June 2020 and 2019 are presented below.
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| For the month ended |
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| ||||
Amounts in thousands |
| June 30, |
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Consolidated Results |
| 2020 |
| 2019 |
| % Change | ||
Net Operating Revenue |
| $ | 32,524 |
| $ | 17,828 |
| 82% |
Earnings (Loss) from Operations |
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| 7,081 |
|
| (7) |
| 101257% |
Net Earnings (Loss) Attributable to Century Casinos, Inc. Shareholders |
| $ | 2,664 |
| $ | (1,858) |
| 243% |
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Adjusted EBITDA* |
| $ | 10,806 |
| $ | 2,274 |
| 375% |
* For a discussion of Adjusted EBITDA see “Non-US GAAP Measures – Adjusted EBITDA” below.
United States
We acquired the operations at MTR, CCG and CCV in the Acquisition in December 2019. The results of operations from the properties acquired in the Acquisition and payment obligations under the Master Lease significantly impact the comparability of our results of operations in the United States segment for the 2020 and 2019 periods. MTR is reported in the West Virginia operating segment, and CCG and CCV are reported in the Missouri operating segment.
West Virginia contributed a total of $12.2 million in net operating revenue and ($4.4) million in net losses for the three months ended June 30, 2020 and $37.3 million in net operating revenue and ($6.8) million in net losses for the six months ended June 30, 2020.
Missouri contributed a total of $9.7 million in net operating revenue and ($5.6) million in net losses for the three months ended June 30, 2020 and $31.3 million in net operating revenue and ($36.4) million in net losses for the six months ended June 30, 2020.
Canada
CMR is reported in the Edmonton operating segment within the Canada reportable segment. CMR began operating the Northern Alberta off-track betting network in January 2019. The Edmonton casino opened and horse racing began in April 2019. CMR contributed $1.9 million in net operating revenue and ($0.9) million in net losses for the three months ended June 30, 2020 and $6.5 million in net operating revenue and ($0.1) million in net losses for the three months ended June 30, 2019. CMR contributed $5.5 million in net operating revenue and ($3.2) million in net losses for the six months ended June 30, 2020 and $8.0 million in net operating revenue and ($0.8) million in net losses for the six months ended June 30, 2019.
Corporate and Other
The interest payments under our Macquarie Credit Agreement significantly impact the comparability of our results of operations in the Corporate and Other segment for the 2020 and 2019 periods.
We wrote-down $0.7 million related to the portion of the liability that we had sought to collect from LOT in the six months ended June 30, 2020.
We closed CCB during the six months ended June 30, 2020.
We operated fewer ship-based casinos during the six months ended June 30, 2020, compared to the six months ended June 30, 2019, and all cruise ships suspended operations in March 2020 due to COVID-19.
Net operating revenue decreased by ($16.3) million, or (31.2%), and increased by $25.7 million, or 26.2%, for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019. Following is a breakout of net operating revenue by segment for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019:
United States increased by $15.0 million, or 170.5%, and by $60.4 million, or 357.9%.
Canada decreased by ($17.3) million, or (78.5%), and by ($17.4) million, or (45.4%).
Poland decreased by ($12.7) million, or (63.2%), and by ($15.4) million, or (38.7%).
Corporate and Other decreased by ($1.4) million, or (89.5%), and by ($1.9) million, or (62.3%).
Operating costs and expenses decreased by ($11.6) million, or (23.4%), and increased by $65.6 million, or 71.3%, for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019. Following is a breakout of operating costs and expenses by segment for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019:
United States increased by $20.0 million, or 278.8%, and by $91.8 million, or 660.4%.
Canada decreased by ($11.2) million, or (65.2%), and by ($5.9) million, or (19.8%).
Poland decreased by ($9.5) million, or (49.7%), and by ($10.8) million, or (29.1%).
Corporate and Other decreased by ($11.0) million, or (168.8%), and by ($9.4) million, or (84.0%).
Earnings from operations decreased by ($4.7) million, or (181.4%), and by ($39.9) million, or (660.7%), for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019. Following is a breakout of earnings from operations by segment for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019:
United States decreased by ($5.0) million, or (302.0%), and by ($31.4) million, or (1053.4%).
Canada decreased by ($6.1) million, or (125.2%), and by ($11.5) million, or (134.0%).
Poland decreased by ($3.2) million, or (315.6%), and by ($4.6) million, or (170.9%).
Corporate and Other increased by $9.6 million, or 193.6%, and by $7.6 million, or 92.0%.
Net earnings decreased by ($12.0) million, or (2131.3%), and by ($59.0) million, or (11722.9%), for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019. Items deducted from or added to earnings from operations to arrive at net earnings include interest income, interest expense, gains (losses) on foreign currency transactions and other, income tax expense and non-controlling interest.
Non-US GAAP Measures – Adjusted EBITDA
We define Adjusted EBITDA as net earnings (loss) attributable to Century Casinos, Inc. shareholders before interest expense (income), net, income taxes (benefit), depreciation and amortization, non-controlling interests net earnings (loss) and transactions, pre-opening expenses, acquisition costs, non-cash stock-based compensation charges, asset impairment costs, (gain) loss on disposition of fixed assets, discontinued operations, (gain) loss on foreign currency transactions, cost recovery income and other, gain on business combination and certain other one-time transactions. Expense related to the Master Lease is included in the interest expense (income), net line item. Intercompany transactions consisting primarily of management and royalty fees and interest, along with their related tax effects, are excluded from the presentation of net earnings (loss) attributable to Century Casinos, Inc. shareholders and Adjusted EBITDA reported for each segment. Not all of the aforementioned items occur in each reporting period, but have been included in the definition based on historical activity. These adjustments have no effect on the consolidated results as reported under US generally accepted accounting principles (“US GAAP”). Adjusted EBITDA is not considered a measure of performance recognized under US GAAP.
Management believes that Adjusted EBITDA is a valuable measure of the relative performance of the Company and its properties. The gaming industry commonly uses Adjusted EBITDA as a method of arriving at the economic value of a casino operation. Management uses Adjusted EBITDA to evaluate and forecast the operating performance of the Company and its properties as well as to compare results of current periods to prior periods. Management believes that presenting Adjusted EBITDA to investors provides them with information used by management for financial and operational decision-making in order to understand the Company’s operating performance and evaluate the methodology used by management to evaluate and measure such performance. Management believes that using Adjusted EBITDA is a useful way to compare the relative operating performance of separate reportable segments by eliminating the above-mentioned items associated with the varying levels of capital expenditures for infrastructure required to generate revenue, and the often high cost of acquiring existing operations. Our computation of Adjusted EBITDA may be different from, and therefore may not be comparable to, similar measures used by other companies within the gaming industry.
The reconciliation of Adjusted EBITDA to net earnings (loss) attributable to Century Casinos, Inc. shareholders is presented below.
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| For the three months ended June 30, 2020 | ||||||||||||||
Amounts in thousands |
| United States |
| Canada |
| Poland |
| Corporate and Other |
| Total | |||||
Net (loss) earnings attributable to Century Casinos, Inc. shareholders |
| $ | (10,271) |
| $ | (1,781) |
| $ | (1,246) |
| $ | 691 |
| $ | (12,607) |
Interest expense (income), net (1) |
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| 6,954 |
|
| 435 |
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| (14) |
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| 3,204 |
|
| 10,579 |
Income (benefit) taxes |
|
| — |
|
| (44) |
|
| (292) |
|
| 918 |
|
| 582 |
Depreciation and amortization |
|
| 4,246 |
|
| 1,289 |
|
| 735 |
|
| 135 |
|
| 6,405 |
Net earnings (loss) attributable to non-controlling interests |
|
| — |
|
| 34 |
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| (624) |
|
| — |
|
| (590) |
Non-cash stock-based compensation |
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| — |
|
| — |
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| — |
|
| 249 |
|
| 249 |
Loss (gain) on foreign currency transactions, cost recovery income and other |
|
| 1,157 |
|
| 135 |
|
| (25) |
|
| (7,631) |
|
| (6,364) |
(Gain) on disposition of fixed assets |
|
| — |
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| (69) |
|
| — |
|
| — |
|
| (69) |
Acquisition costs |
|
| — |
|
| — |
|
| — |
|
| 53 |
|
| 53 |
Adjusted EBITDA |
| $ | 2,086 |
| $ | (1) |
| $ | (1,466) |
| $ | (2,381) |
| $ | (1,762) |
(1)Expense of $7.0 million related to the Master Lease is included in interest expense (income), net in the United States segment. Expense of $0.4 million related to the CDR land lease is included in interest expense (income), net in the Canada segment. Cash payments related to the Master Lease and CDR land lease were $4.2 million and $0.4 million, respectively, for the period presented.
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| For the three months ended June 30, 2019 | ||||||||||||||
Amounts in thousands |
| United States |
| Canada |
| Poland |
| Corporate and Other |
| Total | |||||
Net earnings (loss) attributable to Century Casinos, Inc. shareholders |
| $ | 1,236 |
| $ | 2,536 |
| $ | 425 |
| $ | (4,762) |
| $ | (565) |
Interest expense (income), net (1) |
|
| — |
|
| 1,320 |
|
| 45 |
|
| 28 |
|
| 1,393 |
Income taxes (benefit) |
|
| 406 |
|
| 778 |
|
| 416 |
|
| (230) |
|
| 1,370 |
Depreciation and amortization |
|
| 527 |
|
| 1,059 |
|
| 716 |
|
| 141 |
|
| 2,443 |
Net earnings attributable to non-controlling interests |
|
| — |
|
| 681 |
|
| 213 |
|
| 29 |
|
| 923 |
Non-cash stock-based compensation |
|
| — |
|
| — |
|
| — |
|
| 359 |
|
| 359 |
(Gain) loss on foreign currency transactions and cost recovery income |
|
| — |
|
| (432) |
|
| (78) |
|
| 5 |
|
| (505) |
Loss on disposition of fixed assets |
|
| 1 |
|
| 2 |
|
| 248 |
|
| 272 |
|
| 523 |
Acquisition costs |
|
| — |
|
| — |
|
| — |
|
| 768 |
|
| 768 |
Adjusted EBITDA |
| $ | 2,170 |
| $ | 5,944 |
| $ | 1,985 |
| $ | (3,390) |
| $ | 6,709 |
(1)Expense of $0.6 million related to the CDR land lease is included in interest expense (income), net in the Canada segment. Cash payments related to the CDR land lease were $0.5 million for the period presented.
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| For the six months ended June 30, 2020 | ||||||||||||||
Amounts in thousands |
| United States |
| Canada |
| Poland |
| Corporate and Other |
| Total | |||||
Net loss attributable to Century Casinos, Inc. shareholders |
| $ | (43,659) |
| $ | (5,987) |
| $ | (1,218) |
| $ | (7,599) |
| $ | (58,463) |
Interest expense (income), net (1) |
|
| 14,235 |
|
| 979 |
|
| 17 |
|
| 6,713 |
|
| 21,944 |
Income taxes (benefit) |
|
| 1,023 |
|
| 1,813 |
|
| (247) |
|
| 517 |
|
| 3,106 |
Depreciation and amortization |
|
| 8,505 |
|
| 2,628 |
|
| 1,501 |
|
| 265 |
|
| 12,899 |
Net earnings (loss) attributable to non-controlling interests |
|
| — |
|
| 214 |
|
| (609) |
|
| — |
|
| (395) |
Non-cash stock-based compensation |
|
| — |
|
| — |
|
| — |
|
| 236 |
|
| 236 |
Loss (gain) on foreign currency transactions, cost recovery income and other |
|
| 30,746 |
|
| 3,447 |
|
| 147 |
|
| (6,046) |
|
| 28,294 |
(Gain) loss on disposition of fixed assets |
|
| — |
|
| (69) |
|
| 2 |
|
| 2 |
|
| (65) |
Acquisition costs |
|
| — |
|
| — |
|
| — |
|
| 266 |
|
| 266 |
Adjusted EBITDA |
| $ | 10,850 |
| $ | 3,025 |
| $ | (407) |
| $ | (5,646) |
| $ | 7,822 |
(1)Expense of $14.2 million related to the Master Lease is included in interest expense (income), net in the United States segment. Expense of $0.9 million related to the CDR land lease is included in interest expense (income), net in the Canada segment. Cash payments related to the Master Lease and CDR land lease were $10.4 million and $0.9 million, respectively, for the period presented.
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|
|
|
|
|
|
| For the six months ended June 30, 2019 | ||||||||||||||
Amounts in thousands |
| United States |
| Canada |
| Poland |
| Corporate and Other |
| Total | |||||
Net earnings (loss) attributable to Century Casinos, Inc. shareholders |
| $ | 2,215 |
| $ | 4,085 |
| $ | 1,339 |
| $ | (7,136) |
| $ | 503 |
Interest expense (income), net (1) |
|
| — |
|
| 2,511 |
|
| 91 |
|
| 45 |
|
| 2,647 |
Income taxes (benefit) |
|
| 764 |
|
| 1,542 |
|
| 876 |
|
| (1,096) |
|
| 2,086 |
Depreciation and amortization |
|
| 1,086 |
|
| 1,856 |
|
| 1,487 |
|
| 439 |
|
| 4,868 |
Net earnings (loss) attributable to non-controlling interests |
|
| — |
|
| 921 |
|
| 669 |
|
| (12) |
|
| 1,578 |
Non-cash stock-based compensation |
|
| — |
|
| — |
|
| — |
|
| 620 |
|
| 620 |
Gain on foreign currency transactions and cost recovery income |
|
| — |
|
| (476) |
|
| (280) |
|
| (7) |
|
| (763) |
Loss (gain) on disposition of fixed assets |
|
| 17 |
|
| (3) |
|
| 253 |
|
| 300 |
|
| 567 |
Acquisition costs |
|
| — |
|
| — |
|
| — |
|
| 768 |
|
| 768 |
Pre-opening expenses |
|
| — |
|
| 538 |
|
| — |
|
| — |
|
| 538 |
Adjusted EBITDA |
| $ | 4,082 |
| $ | 10,974 |
| $ | 4,435 |
| $ | (6,079) |
| $ | 13,412 |
(1)Expense of $1.1 million related to the CDR land lease is included in interest expense (income), net in the Canada segment. Cash payments related to the CDR land lease were $1.0 million for the period presented.
Non-US GAAP Measures – Constant Currency
The impact of foreign exchange rates is highly variable and difficult to predict. We use a Constant Currency basis to show the impact from foreign exchange rates on the current period results compared to the prior period results using the prior period’s foreign exchange rates. In order to properly understand the underlying business trends and performance of the Company’s ongoing operations, management believes that investors may find it useful to consider the impact of excluding changes in foreign exchange rates from our operating revenue, (loss) earnings from operations, net earnings (loss) attributable to Century Casinos, Inc. shareholders and Adjusted EBITDA. Constant Currency results are calculated by dividing the current quarter or year to date local currency segment results, excluding the local currency impact of foreign currency gains and losses, by the prior year’s average exchange rate for the quarter or year to date and comparing them to actual US dollar results for the prior quarter or year to date. The current and prior year’s average exchange rates for the three-month periods are presented above. Constant Currency results are not considered a measure of performance recognized under US GAAP. The Constant Currency results are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months |
|
|
| For the six months |
|
| ||||||||
|
| ended June 30, |
|
|
| ended June 30, |
|
| ||||||||
Amounts in thousands |
|
| 2020 |
|
| 2019 |
| % Change |
|
| 2020 |
|
| 2019 |
| % Change |
Net operating revenue as reported (US GAAP) |
| $ | 36,103 |
| $ | 52,445 |
| (31%) |
| $ | 123,760 |
| $ | 98,057 |
| 26% |
Foreign currency impact vs. 2019 |
|
| 474 |
|
|
|
|
|
|
| 989 |
|
|
|
|
|
Net operating revenue constant currency (non-US GAAP) |
| $ | 36,577 |
| $ | 52,445 |
| (30%) |
| $ | 124,749 |
| $ | 98,057 |
| 27% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations (US GAAP) |
| $ | (2,114) |
| $ | 2,598 |
| (181%) |
| $ | (33,887) |
| $ | 6,044 |
| (661%) |
Foreign currency impact vs. 2019 |
|
| 540 |
|
|
|
|
|
|
| 446 |
|
|
|
|
|
(Loss) earnings from operations constant currency (non-US GAAP) |
| $ | (1,574) |
| $ | 2,598 |
| (161%) |
| $ | (33,441) |
| $ | 6,044 |
| (653%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings attributable to Century Casinos, Inc. shareholders as reported (US GAAP) |
| $ | (12,607) |
| $ | (565) |
| (2131%) |
| $ | (58,463) |
| $ | 503 |
| (11723%) |
Foreign currency impact vs. 2019 |
|
| 413 |
|
|
|
|
|
|
| 159 |
|
|
|
|
|
Net (loss) earnings attributable to Century Casinos, Inc. shareholders constant currency (non-US GAAP) |
| $ | (12,194) |
| $ | (565) |
| (2058%) |
| $ | (58,304) |
| $ | 503 |
| (11691%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and losses on foreign currency transactions are added back to net earnings in our Adjusted EBITDA calculations. As such, there is no foreign currency impact to Adjusted EBITDA when calculating Constant Currency results.
Non-US GAAP Measures – Net Debt
We define Net Debt as total long-term debt (including current portion) plus deferred financing costs minus cash and cash equivalents. Net Debt is not considered a liquidity measure recognized under US GAAP. Management believes that Net Debt is a valuable measure of our overall financial situation. Net Debt provides investors with an indication of our ability to pay off all of our long-term debt if it became due simultaneously. The reconciliation of Net Debt is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in thousands |
| June 30, 2020 |
| June 30, 2019 | ||
Total long-term debt, including current portion |
| $ | 194,149 |
| $ | 72,057 |
Deferred financing costs |
|
| 9,846 |
|
| 411 |
Total principal |
| $ | 203,995 |
| $ | 72,468 |
Less: Cash and cash equivalents |
| $ | 51,641 |
| $ | 47,000 |
Net Debt |
| $ | 152,354 |
| $ | 25,468 |
|
|
|
|
|
|
|
Reportable Segments
The following discussion provides further detail of consolidated results by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months |
|
|
|
|
| For the six months |
|
|
|
| ||||||||||
|
| ended June 30, |
|
|
| % |
| ended June 30, |
|
|
| % | ||||||||||
Amounts in thousands |
|
| 2020 |
|
| 2019 |
|
| Change |
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| Change |
Gaming |
| $ | 21,095 |
| $ | 7,381 |
| $ | 13,714 |
| 185.8% |
| $ | 67,631 |
| $ | 14,179 |
| $ | 53,452 |
| 377.0% |
Hotel |
|
| 476 |
|
| 373 |
|
| 103 |
| 27.6% |
|
| 2,209 |
|
| 694 |
|
| 1,515 |
| 218.3% |
Food and Beverage |
|
| 774 |
|
| 949 |
|
| (175) |
| (18.4%) |
|
| 4,528 |
|
| 1,811 |
|
| 2,717 |
| 150.0% |
Other |
|
| 1,487 |
|
| 106 |
|
| 1,381 |
| 1302.8% |
|
| 2,894 |
|
| 190 |
|
| 2,704 |
| 1423.2% |
Net Operating Revenue |
|
| 23,832 |
|
| 8,809 |
|
| 15,023 |
| 170.5% |
|
| 77,262 |
|
| 16,874 |
|
| 60,388 |
| 357.9% |
Gaming Expenses |
|
| (11,813) |
|
| (3,409) |
|
| 8,404 |
| 246.5% |
|
| (39,628) |
|
| (6,649) |
|
| 32,979 |
| 496.0% |
Hotel Expenses |
|
| (256) |
|
| (130) |
|
| 126 |
| 96.9% |
|
| (930) |
|
| (258) |
|
| 672 |
| 260.5% |
Food and Beverage Expenses |
|
| (1,005) |
|
| (1,005) |
|
| — |
| — |
|
| (4,489) |
|
| (1,918) |
|
| 2,571 |
| 134.0% |
General and Administrative Expenses |
|
| (8,672) |
|
| (2,096) |
|
| 6,576 |
| 313.7% |
|
| (21,365) |
|
| (3,984) |
|
| 17,381 |
| 436.3% |
Impairment - Goodwill and Intangible Assets |
|
| (1,157) |
|
| — |
|
| 1,157 |
| 100.0% |
|
| (30,746) |
|
| — |
|
| 30,746 |
| 100.0% |
Total Operating Costs and Expenses |
|
| (27,149) |
|
| (7,167) |
|
| 19,982 |
| 278.8% |
|
| (105,663) |
|
| (13,895) |
|
| 91,768 |
| 660.4% |
(Loss) Earnings from Operations |
|
| (3,317) |
|
| 1,642 |
|
| (4,959) |
| (302.0%) |
|
| (28,401) |
|
| 2,979 |
|
| (31,380) |
| (1053.4%) |
Net (Loss) Earnings Attributable to Century Casinos, Inc. Shareholders |
|
| (10,271) |
|
| 1,236 |
|
| (11,507) |
| (931.0%) |
|
| (43,659) |
|
| 2,215 |
|
| (45,874) |
| (2071.1%) |
Adjusted EBITDA |
| $ | 2,086 |
| $ | 2,170 |
| $ | (84) |
| (3.9%) |
| $ | 10,850 |
| $ | 4,082 |
| $ | 6,768 |
| 165.8% |
We acquired MTR in West Virginia and CCG and CCV in Missouri in the Acquisition in December 2019.
Sports wagering in Colorado became legal on May 1, 2020. We have partnered with sports betting operators that will conduct sports wagering under two of our three Colorado master licenses for sports wagering held by our Colorado subsidiaries. One of these mobile sports betting apps launched in July 2020. Each agreement with the sports betting operators provides for a share of net gaming revenue and a minimum revenue guarantee each year.
Our US operations closed due to COVID-19 on March 17, 2020 and reopened between June 1, 2020 and June 17, 2020. The results below are presented to illustrate the impact of COVID-19 on net operating revenue in the United States segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019. We did not acquire the West Virginia and Missouri properties until December 2019.
|
|
|
|
|
|
|
|
|
Amounts in millions, except percentages | Jan | Feb | Mar | Apr | May | Jun | Q2 | YTD |
Colorado |
|
|
|
|
|
|
|
|
2020 | 2.8 | 2.8 | 1.1 | — | — | 2.0 | 2.0 | 8.7 |
2019 | 2.6 | 2.5 | 3.0 | 2.8 | 3.0 | 3.0 | 8.8 | 16.9 |
| 0.2 | 0.3 | (1.9) | (2.8) | (3.0) | (1.0) | (6.8) | (8.2) |
| 7.7% | 12.0% | (63.3%) | (100.0%) | (100.0%) | (33.3%) | (77.3%) | (48.5%) |
|
|
|
|
|
|
|
|
|
West Virginia |
|
|
|
|
|
|
|
|
2020 | 9.6 | 10.3 | 5.2 | — | 0.2 | 12.0 | 12.2 | 37.3 |
|
|
|
|
|
|
|
|
|
Missouri |
|
|
|
|
|
|
|
|
2020 | 7.9 | 9.0 | 4.7 | — | — | 9.6 | 9.6 | 31.2 |
Preliminary net operating revenue estimates for July 2020 are $3.6 million for Colorado, $8.1 million for West Virginia and $8.1 million for Missouri.
The results below are presented to illustrate the impact of COVID-19 on operating expenses in the United States segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, excluding depreciation and amortization expense and impairment – goodwill and intangible assets.
|
|
|
|
|
|
|
|
|
Amounts in millions, except percentages | Jan | Feb | Mar | Apr | May | Jun | Q2 | YTD |
Colorado |
|
|
|
|
|
|
|
|
2020 | 2.2 | 2.1 | 1.6 | 0.5 | 0.4 | 0.8 | 1.7 | 7.6 |
2019 | 2.1 | 2.0 | 2.1 | 2.2 | 2.2 | 2.2 | 6.6 | 12.8 |
| 0.1 | 0.1 | (0.5) | (1.7) | (1.8) | (1.4) | (4.9) | (5.2) |
| 4.8% | 5.0% | (23.8%) | (77.3%) | (81.8%) | (63.6%) | (74.2%) | (40.6%) |
|
|
|
|
|
|
|
|
|
West Virginia |
|
|
|
|
|
|
|
|
2020 | 8.5 | 8.5 | 6.3 | 2.2 | 1.8 | 8.7 | 12.7 | 36.0 |
|
|
|
|
|
|
|
|
|
Missouri |
|
|
|
|
|
|
|
|
2020 | 5.2 | 6.0 | 4.3 | 1.5 | 1.3 | 4.5 | 7.3 | 22.8 |
During the United States closures we suspended marketing initiatives, furloughed employees and reduced operating costs and expenses as much as possible. Additional savings related to gaming-related expenses. COVID-19 continues to impact results, and we are seeking to maintain operating costs at or below prior year levels for the remainder of 2020. In Colorado, we expect payroll costs will continue to trend below the prior year due to table game closures anticipated through at least mid-August 2020. We anticipate increasing our promotional offerings as needed to compete in the competitive markets in which we operate our US casinos. Special events at our properties have been cancelled or postponed, which will reduce advertising costs. We plan to continue to update our properties with enhancements to encourage social distancing and other measures to allow us to reopen additional gaming space and other facilities that currently are closed due to COVID-19 restrictions.
Estimated preliminary Adjusted EBITDA for July 2020 are $1.6 million for Colorado, $0.7 million for West Virginia and $3.2 million for Missouri.
A reconciliation of net earnings attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-US GAAP Measures – Adjusted EBITDA” discussion above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months |
|
|
|
|
| For the six months |
|
|
|
| ||||||||||
|
| ended June 30, |
|
|
| % |
| ended June 30, |
|
|
| % | ||||||||||
Amounts in thousands |
|
| 2020 |
|
| 2019 |
|
| Change |
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| Change |
Gaming |
| $ | 2,077 |
| $ | 13,649 |
| $ | (11,572) |
| (84.8%) |
| $ | 12,286 |
| $ | 23,582 |
| $ | (11,296) |
| (47.9%) |
Hotel |
|
| — |
|
| 121 |
|
| (121) |
| (100.0%) |
|
| 83 |
|
| 246 |
|
| (163) |
| (66.3%) |
Food and Beverage |
|
| 313 |
|
| 3,656 |
|
| (3,343) |
| (91.4%) |
|
| 2,812 |
|
| 6,097 |
|
| (3,285) |
| (53.9%) |
Other |
|
| 2,329 |
|
| 4,562 |
|
| (2,233) |
| (48.9%) |
|
| 5,721 |
|
| 8,364 |
|
| (2,643) |
| (31.6%) |
Net Operating Revenue |
|
| 4,719 |
|
| 21,988 |
|
| (17,269) |
| (78.5%) |
|
| 20,902 |
|
| 38,289 |
|
| (17,387) |
| (45.4%) |
Gaming Expenses |
|
| (12) |
|
| (3,456) |
|
| (3,444) |
| (99.7%) |
|
| (2,986) |
|
| (6,399) |
|
| (3,413) |
| (53.3%) |
Hotel Expenses |
|
| 2 |
|
| (57) |
|
| (59) |
| (103.5%) |
|
| (48) |
|
| (107) |
|
| (59) |
| (55.1%) |
Food and Beverage Expenses |
|
| (99) |
|
| (3,192) |
|
| (3,093) |
| (96.9%) |
|
| (2,486) |
|
| (5,295) |
|
| (2,809) |
| (53.1%) |
General and Administrative Expenses |
|
| (4,550) |
|
| (9,341) |
|
| (4,791) |
| (51.3%) |
|
| (12,296) |
|
| (16,049) |
|
| (3,753) |
| (23.4%) |
Impairment - Goodwill and Intangible Assets |
|
| — |
|
| — |
|
| — |
| — |
|
| (3,375) |
|
| — |
|
| 3,375 |
| 100.0% |
Total Operating Costs and Expenses |
|
| (5,948) |
|
| (17,105) |
|
| (11,157) |
| (65.2%) |
|
| (23,819) |
|
| (29,706) |
|
| (5,887) |
| (19.8%) |
(Loss) Earnings from Operations |
|
| (1,229) |
|
| 4,883 |
|
| (6,112) |
| (125.2%) |
|
| (2,917) |
|
| 8,583 |
|
| (11,500) |
| (134.0%) |
Non-Controlling Interest |
|
| (34) |
|
| (681) |
|
| (647) |
| (95.0%) |
|
| (1,973) |
|
| (921) |
|
| 1,052 |
| 114.2% |
Net (Loss) Earnings Attributable to Century Casinos, Inc. Shareholders |
|
| (1,781) |
|
| 2,536 |
|
| (4,317) |
| (170.2%) |
|
| (5,987) |
|
| 4,085 |
|
| (10,072) |
| (246.6%) |
Adjusted EBITDA |
| $ | (1) |
| $ | 5,944 |
| $ | (5,945) |
| (100.0%) |
| $ | 3,025 |
| $ | 10,974 |
| $ | (7,949) |
| (72.4%) |
In January 2019, CMR began operating the Northern Alberta off-track betting network. The CMR casino in Edmonton opened on April 1, 2019, and the first horse race was held on April 28, 2019.
Results in US dollars were impacted by 3.6% and 2.3% exchange rate decreases in the average rate between the US dollar and the Canadian dollar for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019, respectively.
Our Canadian operations closed due to COVID-19 on March 17, 2020 and reopened on June 13, 2020. The results below are presented to illustrate the impact of COVID-19 on net operating revenue in the Canada segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.
|
|
|
|
|
|
|
|
|
Amounts in millions, except percentages | Jan | Feb | Mar | Apr | May | Jun | Q2 | YTD |
Edmonton - CAD |
|
|
|
|
|
|
|
|
2020 | 4.8 | 5.3 | 3.0 | 0.4 | 0.5 | 3.0 | 3.9 | 17.0 |
2019 | 3.7 | 3.7 | 4.4 | 6.4 | 6.1 | 6.0 | 18.5 | 30.3 |
| 1.1 | 1.6 | (1.4) | (6.0) | (5.6) | (3.0) | (14.6) | (13.3) |
| 29.7% | 43.2% | (31.8%) | (93.8%) | (91.8%) | (50.0%) | (78.9%) | (43.9%) |
Edmonton - USD |
|
|
|
|
|
|
|
|
2020 | 3.6 | 4.0 | 2.2 | 0.3 | 0.3 | 2.2 | 2.8 | 12.6 |
2019 | 2.8 | 2.8 | 3.3 | 4.7 | 4.6 | 4.5 | 13.8 | 22.7 |
| 0.8 | 1.2 | (1.1) | (4.4) | (4.3) | (2.3) | (11.0) | (10.1) |
| 28.6% | 42.9% | (33.3%) | (93.6%) | (93.5%) | (51.1%) | (79.7%) | (44.5%) |
|
|
|
|
|
|
|
|
|
Calgary - CAD |
|
|
|
|
|
|
|
|
2020 | 3.3 | 3.5 | 1.7 | 0.2 | 0.4 | 2.0 | 2.6 | 11.1 |
2019 | 3.4 | 2.7 | 3.8 | 3.4 | 3.8 | 3.7 | 10.9 | 20.8 |
| (0.1) | 0.8 | (2.1) | (3.2) | (3.4) | (1.7) | (8.3) | (9.7) |
| (2.9%) | 29.6% | (55.3%) | (94.1%) | (89.5%) | (45.9%) | (76.1%) | (46.6%) |
Calgary - USD |
|
|
|
|
|
|
|
|
2020 | 2.6 | 2.6 | 1.2 | 0.2 | 0.3 | 1.4 | 1.9 | 8.3 |
2019 | 2.5 | 2.0 | 2.9 | 2.6 | 2.8 | 2.8 | 8.2 | 15.6 |
| 0.1 | 0.6 | (1.7) | (2.4) | (2.5) | (1.4) | (6.3) | (7.3) |
| 4.0% | 30.0% | (58.6%) | (92.3%) | (89.3%) | (50.0%) | (76.8%) | (46.8%) |
Preliminary net operating revenue estimates for July 2020 are CAD 4.4 million ($3.3 million based on the exchange rate on July 31, 2020) for Edmonton and CAD 2.7 million ($2.0 million based on the exchange rate on July 31, 2020) for Calgary.
The results below are presented to illustrate the impact of COVID-19 on operating expenses in the Canada segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, excluding depreciation and amortization expense and impairment – goodwill and intangible assets.
|
|
|
|
|
|
|
|
|
Amounts in millions, except percentages | Jan | Feb | Mar | Apr | May | Jun | Q2 | YTD |
Edmonton - CAD |
|
|
|
|
|
|
|
|
2020 | 3.9 | 4.0 | 3.7 | 1.1 | 1.0 | 2.0 | 4.1 | 15.7 |
2019 | 2.9 | 3.1 | 3.6 | 4.7 | 5.2 | 4.6 | 14.5 | 24.1 |
| 1.0 | 0.9 | 0.1 | (3.6) | (4.2) | (2.6) | (10.4) | (8.4) |
| 34.5% | 29.0% | 2.8% | (76.6%) | (80.8%) | (56.5%) | (71.7%) | (34.9%) |
Edmonton - USD |
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|
|
|
|
2020 | 3.0 | 3.0 | 2.7 | 0.7 | 0.7 | 1.5 | 2.9 | 11.6 |
2019 | 2.2 | 2.4 | 2.7 | 3.5 | 3.8 | 3.5 | 10.8 | 18.1 |
| 0.8 | 0.6 | — | (2.8) | (3.1) | (2.0) | (7.9) | (6.5) |
| 36.4% | 25.0% | — | (80.0%) | (81.6%) | (57.1%) | (73.1%) | (35.9%) |
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|
|
Calgary - CAD |
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|
|
2020 | 1.9 | 2.1 | 2.0 | 0.7 | 0.6 | 1.3 | 2.6 | 8.6 |
2019 | 2.0 | 2.0 | 2.1 | 2.2 | 2.4 | 2.4 | 7.0 | 13.1 |
| (0.1) | 0.1 | (0.1) | (1.5) | (1.8) | (1.1) | (4.4) | (4.5) |
| (5.0%) | 5.0% | (4.8%) | (68.2%) | (75.0%) | (45.8%) | (62.9%) | (34.4%) |
Calgary - USD |
|
|
|
|
|
|
|
|
2020 | 1.5 | 1.6 | 1.4 | 0.5 | 0.4 | 0.9 | 1.8 | 6.3 |
2019 | 1.5 | 1.5 | 1.6 | 1.6 | 1.8 | 1.8 | 5.2 | 9.8 |
| — | 0.1 | (0.2) | (1.1) | (1.4) | (0.9) | (3.4) | (3.5) |
| — | 6.7% | (12.5%) | (68.8%) | (77.8%) | (50.0%) | (65.4%) | (35.7%) |
During the Canadian closures we suspended marketing initiatives, furloughed employees and reduced operating costs and expenses as much as possible. Additional savings related to wage subsidies provided by the Canadian government. Because COVID-19 continues to impact results, and we are focusing on managing costs. We continue to look for synergies between our Canadian properties including prizes that are available to guests at all locations instead of at individual casinos only. We expect payroll costs will continue to trend below the prior year due to closures of table games, limited attendance allowed for horse racing and government wage subsidies through December 2020. We plan to continue to update our properties with enhancements to encourage social distancing and other measures to allow us to reopen additional gaming space and other facilities that currently are closed due to COVID-19 restrictions.
Estimated preliminary Adjusted EBITDA for July 2020 are CAD 2.1 million ($1.6 million based on the exchange rate on July 31, 2020) for Edmonton and CAD 1.2 million ($0.9 million based on the exchange rate on July 31, 2020) for Calgary.
A reconciliation of net earnings attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-US GAAP Measures – Adjusted EBITDA” discussion above.
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Poland |
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|
| For the three months |
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|
|
| For the six months |
|
|
|
| ||||||||||
|
| ended June 30, |
|
|
| % |
| ended June 30, |
|
|
| % | ||||||||||
Amounts in thousands |
|
| 2020 |
|
| 2019 |
|
| Change |
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| Change |
Gaming |
| $ | 6,748 |
| $ | 19,875 |
| $ | (13,127) |
| (66.0%) |
| $ | 23,503 |
| $ | 39,335 |
| $ | (15,832) |
| (40.2%) |
Food and Beverage |
|
| 64 |
|
| 214 |
|
| (150) |
| (70.1%) |
|
| 258 |
|
| 441 |
|
| (183) |
| (41.5%) |
Other |
|
| 578 |
|
| 18 |
|
| 560 |
| 3111.1% |
|
| 692 |
|
| 83 |
|
| 609 |
| 733.7% |
Net Operating Revenue |
|
| 7,390 |
|
| 20,107 |
|
| (12,717) |
| (63.2%) |
|
| 24,453 |
|
| 39,859 |
|
| (15,406) |
| (38.7%) |
Gaming Expenses |
|
| (4,641) |
|
| (14,012) |
|
| (9,371) |
| (66.9%) |
|
| (15,224) |
|
| (26,475) |
|
| (11,251) |
| (42.5%) |
Food and Beverage Expenses |
|
| (364) |
|
| (142) |
|
| 222 |
| 156.3% |
|
| (1,030) |
|
| (856) |
|
| 174 |
| 20.3% |
General and Administrative Expenses |
|
| (3,851) |
|
| (4,216) |
|
| (365) |
| (8.7%) |
|
| (8,608) |
|
| (8,346) |
|
| 262 |
| 3.1% |
Total Operating Costs and Expenses |
|
| (9,591) |
|
| (19,086) |
|
| (9,495) |
| (49.7%) |
|
| (26,363) |
|
| (37,164) |
|
| (10,801) |
| (29.1%) |
(Loss) Earnings from Operations |
|
| (2,201) |
|
| 1,021 |
|
| (3,222) |
| (315.6%) |
|
| (1,910) |
|
| 2,695 |
|
| (4,605) |
| (170.9%) |
Non-Controlling Interest |
|
| 624 |
|
| (213) |
|
| (837) |
| (393.0%) |
|
| 609 |
|
| (669) |
|
| (1,278) |
| (191.0%) |
Net (Loss) Earnings Attributable to Century Casinos, Inc. Shareholders |
|
| (1,246) |
|
| 425 |
|
| (1,671) |
| (393.2%) |
|
| (1,218) |
|
| 1,339 |
|
| (2,557) |
| (191.0%) |
Adjusted EBITDA |
| $ | (1,466) |
| $ | 1,985 |
| $ | (3,451) |
| (173.9%) |
| $ | (407) |
| $ | 4,435 |
| $ | (4,842) |
| (109.2%) |
In Poland, casino gaming licenses are granted for a term of six years. These licenses are not renewable. When a gaming license expires, any gaming company can apply for a new license for that city. The casino at the LIM Center in Warsaw reopened in August 2019. We expanded the gaming floor at the Marriott Hotel and added an additional six table games in May 2019.
We currently operate three casinos in Warsaw. There is proposed legislation to split the Warsaw voivodship (or province), which could limit the number of casino licenses available in Warsaw in the future. If the legislation is passed, it is expected that as licenses in Warsaw expire a new tender would not be offered until the maximum number of licenses available is reached. Any change to the number of licenses available in a city could have a negative impact on results if we are unable to renew our casino licenses.
Results in US dollars were impacted by 7.5% and 5.6% decreases in the average exchange rate between the US dollar and Polish zloty for the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019, respectively.
The casinos in Poland closed due to COVID-19 on March 13, 2020 and reopened on May 18, 2020. The results below are presented to illustrate the impact of COVID-19 on net operating revenue in the Poland segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.
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|
|
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|
|
Amounts in millions, except percentages | Jan | Feb | Mar | Apr | May | Jun | Q2 | YTD |
PLN |
|
|
|
|
|
|
|
|
2020 | 26.6 | 26.2 | 13.8 | (0.3) | 8.1 | 21.8 | 29.6 | 96.2 |
2019 | 22.7 | 22.8 | 29.3 | 24.7 | 25.2 | 26.7 | 76.6 | 151.4 |
| 3.9 | 3.4 | (15.5) | (25.0) | (17.1) | (4.9) | (47.0) | (55.2) |
| 17.2% | 14.9% | (52.9%) | (101.2%) | (67.9%) | (18.4%) | (61.4%) | (36.5%) |
USD |
|
|
|
|
|
|
|
|
2020 | 7.0 | 6.7 | 3.4 | — | 1.9 | 5.5 | 7.4 | 24.5 |
2019 | 6.1 | 6.0 | 7.7 | 6.5 | 6.5 | 7.1 | 20.1 | 39.9 |
| 0.9 | 0.7 | (4.3) | (6.5) | (4.6) | (1.6) | (12.7) | (15.4) |
| 14.8% | 11.7% | (55.8%) | (100.0%) | (70.8%) | (22.5%) | (63.2%) | (38.6%) |
Preliminary net operating revenue estimates for July 2020 are PLN 20.1 million ($5.4 million based on the exchange rate on July 31, 2020) for Poland.
The results below are presented to illustrate the impact of COVID-19 on operating expenses in the Poland segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, excluding depreciation and amortization expense and impairment – goodwill and intangible assets.
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|
|
|
|
|
|
|
|
Amounts in millions, except percentages | Jan | Feb | Mar | Apr | May | Jun | Q2 | YTD |
PLN |
|
|
|
|
|
|
|
|
2020 | 24.5 | 23.9 | 14.1 | 6.0 | 11.8 | 18.1 | 35.9 | 98.4 |
2019 | 20.1 | 20.7 | 24.7 | 22.6 | 23.1 | 23.3 | 69.0 | 134.5 |
| 4.4 | 3.2 | (10.6) | (16.6) | (11.3) | (5.2) | (33.1) | (36.1) |
| 21.9% | 15.5% | (42.9%) | (73.5%) | (48.9%) | (22.3%) | (48.0%) | (26.8%) |
USD |
|
|
|
|
|
|
|
|
2020 | 6.4 | 6.1 | 3.5 | 1.4 | 2.9 | 4.6 | 8.9 | 24.9 |
2019 | 5.4 | 5.5 | 6.4 | 5.9 | 6.0 | 6.2 | 18.1 | 35.4 |
| (1.0) | (0.6) | 2.9 | 4.5 | 3.1 | 1.6 | 9.2 | 10.5 |
| 18.5% | 10.9% | (45.3%) | (76.3%) | (51.7%) | (25.8%) | (50.8%) | (29.7%) |
During the closures of our Poland casinos we reduced operating costs and expenses as much as possible. Additional cost savings related to wage subsidies were provided by the Polish government. COVID-19 continues to impact results, and we are focusing on analyzing staffing needs to match customer volumes to continue to manage our costs.
Estimated preliminary Adjusted EBITDA for Poland for July 2020 is PLN 1.5 million ($0.4 million based on the exchange rate on July 31, 2020).
A reconciliation of net earnings (loss) attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-US GAAP Measures – Adjusted EBITDA” discussion above.
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|
|
Corporate and Other |
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months |
|
|
|
|
| For the six months |
|
|
|
| ||||||||||
|
| ended June 30, |
|
|
| % |
| ended June 30, |
|
|
| % | ||||||||||
Amounts in thousands |
|
| 2020 |
|
| 2019 |
|
| Change |
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| Change |
Gaming |
| $ | 2 |
| $ | 1,081 |
| $ | (1,079) |
| (99.8%) |
| $ | 795 |
| $ | 2,230 |
| $ | (1,435) |
| (64.3%) |
Food and Beverage |
|
| — |
|
| 235 |
|
| (235) |
| (100.0%) |
|
| 105 |
|
| 456 |
|
| (351) |
| (77.0%) |
Other |
|
| 160 |
|
| 225 |
|
| (65) |
| (28.9%) |
|
| 243 |
|
| 349 |
|
| (106) |
| (30.4%) |
Net Operating Revenue |
|
| 162 |
|
| 1,541 |
|
| (1,379) |
| (89.5%) |
|
| 1,143 |
|
| 3,035 |
|
| (1,892) |
| (62.3%) |
Gaming Expenses |
|
| (16) |
|
| (841) |
|
| (825) |
| (98.1%) |
|
| (687) |
|
| (1,761) |
|
| (1,074) |
| (61.0%) |
Food and Beverage Expenses |
|
| — |
|
| (211) |
|
| (211) |
| (100.0%) |
|
| (133) |
|
| (411) |
|
| (278) |
| (67.6%) |
General and Administrative Expenses |
|
| 4,622 |
|
| (5,310) |
|
| (9,932) |
| (187.0%) |
|
| 283 |
|
| (8,636) |
|
| (8,919) |
| (103.3%) |
Impairment - Goodwill and Intangible Assets |
|
| — |
|
| — |
|
| — |
| — |
|
| (1,000) |
|
| — |
|
| 1,000 |
| 100.0% |
Total Operating Costs and Expenses |
|
| 4,471 |
|
| (6,503) |
|
| (10,974) |
| (168.8%) |
|
| (1,802) |
|
| (11,247) |
|
| (9,445) |
| (84.0%) |
Loss from Equity Investment |
|
| — |
|
| 14 |
|
| (14) |
| (100.0%) |
|
| — |
|
| (1) |
|
| 1 |
| 100.0% |
Earnings (Loss) from Operations |
|
| 4,633 |
|
| (4,948) |
|
| 9,581 |
| 193.6% |
|
| (659) |
|
| (8,213) |
|
| 7,554 |
| 92.0% |
Non-Controlling Interest |
|
| — |
|
| (29) |
|
| 29 |
| 100.0% |
|
| — |
|
| 12 |
|
| (12) |
| (100.0%) |
Net Earnings (Loss) Attributable to Century Casinos, Inc. Shareholders |
|
| 691 |
|
| (4,762) |
|
| 5,453 |
| 114.5% |
|
| (7,599) |
|
| (7,136) |
|
| (463) |
| (6.5%) |
Adjusted EBITDA |
| $ | (2,381) |
| $ | (3,390) |
| $ | 1,009 |
| 29.8% |
| $ | (5,646) |
| $ | (6,079) |
| $ | 433 |
| 7.1% |
We permanently closed the casino at CCB on March 17, 2020. CCB entered creditor’s voluntary liquidation in May 2020 and was deconsolidated as a subsidiary during the three months ended June 30, 2020. For additional information related to CCB, see Note 1, “Description of Business and Basis of Presentation,” to our condensed consolidated financial statements in Part I, Item 1 of this report.
The cruise ships on which our ship-based casinos are located stopped sailing around March 10, 2020 due to COVID-19. As of June 30, 2020, we had a concession agreement with TUI Cruises for one ship-based casino. Our concession agreements for four of the ship-based casinos that we operated prior to their COVID-19 related closures in March 2020 ended on May 12, 2020. We are negotiating a concession agreement with TUI Cruises to operate three ship-based casinos through May 2021
We have mutually agreed with the cruise lines through which we have concession agreements not to extend certain agreements at their termination dates. The following is a summary of concession agreements that ended in 2019 and 2020.
|
|
Cruise Ship | Month of Contract Expiration |
Wind Spirit | January 2019 |
Star Pride | March 2019 |
Wind Surf | April 2019 |
Star Breeze | April 2019 |
Star Legend | May 2019 |
Mein Schiff 3 | May 2020 |
In April 2018, CRM purchased a 51% ownership interest in GHL. GHL entered into agreements with MCL, the owner of a hotel and international entertainment and gaming club in the Cao Bang province of Vietnam, under which GHL manages MCL and owns 9.21% of its outstanding shares. We sold our interest in GHL to the unaffiliated shareholders of GHL in May 2019 for a $0.7 million non-interest bearing promissory note. We recognized a loss on sale of less than ($0.1) million in general and administrative expenses on our condensed consolidated statement of (loss) earnings for the year ended December 31, 2019. We consolidated GHL as a majority-owned subsidiary for which we have a controlling financial interest and accounted for GHL’s interest in MCL as an equity investment through May 2019. The sale of our equity interest in GHL also ended our equity interest in MCL.
Three Months Ended June 30, 2020 and 2019
The following discussion highlights results for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.
Revenue Highlights
Non-Corporate Reporting Units
Net operating revenue decreased due to the casino closures at CCB and on the ships.
Operating Expense Highlights
Non-Corporate Reporting Units
Total operating costs and expenses decreased due to the casino closures at CCB and on the ships. In addition, the deconsolidation of CCB resulted in a gain of $7.4 million that we recognized in general and administrative expenses on our statement of (loss) earnings for the three months ended June 30, 2020.
Corporate Reporting Units
Our corporate reporting units include certain other corporate and management operations. Total operating costs and expenses decreased by ($0.6) million, or (19.5%) due to the closures. During the closures, certain of our corporate staff voluntarily decreased their salaries. In addition, in 2019 there were additional expenses related to the Acquisition that did not reoccur in 2020.
Six Months Ended June 30, 2020 and 2019
The following discussion highlights results for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.
Revenue Highlights
Non-Corporate Reporting Units
Net operating revenue decreased due to the casino closures at CCB and on the ships due to COVID-19.
Operating Expense Highlights
Non-Corporate Reporting Units
Total operating costs and expenses decreased due to casino closures at CCB and on the ships. In addition, the deconsolidation of CCB resulted in a gain of $7.4 million that we recognized in general and administrative expenses on our statement of (loss) earnings for the six months ended June 30, 2020.
Corporate Reporting Units
Total operating costs and expenses increased by $0.3 million, or 5.6%. In March 2020, we impaired the MCE investment due to an assessment of their operations resulting from COVID-19. As a result of the impairment, we recorded $1.0 million to impairment – goodwill and intangible assets during the six months ended June 30, 2020. In addition, we assessed the collectability of a receivable from LOT related to the Poland contingent liability and determined that, due to COVID-19, it was more likely than not that LOT will be unable to repay us for its portion of taxes paid by CPL to the Polish IRS. As a result, we wrote-down the $0.7 million receivable to general and administrative expenses for the six months ended June 30, 2020. Offsetting these increases, during the closures certain of our corporate staff voluntarily decreased their salaries. In addition, in 2019 there were additional expenses related to the Acquisition that did not reoccur in 2020
A reconciliation of net loss attributable to Century Casinos, Inc. shareholders to Adjusted EBITDA can be found in the “Non-US GAAP Measures – Adjusted EBITDA” discussion above.
Non-Operating Income (Expense)
Non-operating income (expense) was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months |
|
|
|
|
|
| For the six months |
|
|
|
|
| ||||||||
|
| ended June 30, |
|
|
|
| % |
| ended June 30, |
|
|
|
| % | ||||||||
Amounts in thousands |
| 2020 |
| 2019 |
| Change |
| Change |
| 2020 |
| 2019 |
| Change |
| Change | ||||||
Interest Income |
| $ | 5 |
| $ | 5 |
| $ | — |
| — |
| $ | 6 |
| $ | 9 |
| $ | (3) |
| (33.3%) |
Interest Expense |
|
| (10,584) |
|
| (1,398) |
|
| 9,186 |
| 657.1% |
|
| (21,950) |
|
| (2,656) |
|
| 19,294 |
| 726.4% |
Gain on Foreign Currency Transactions and Other |
|
| 78 |
|
| 523 |
|
| (445) |
| (85.1%) |
|
| 79 |
|
| 770 |
|
| (691) |
| (89.7%) |
Non-Operating (Expense) Income |
| $ | (10,501) |
| $ | (870) |
| $ | 9,631 |
| 1107.0% |
| $ | (21,865) |
| $ | (1,877) |
| $ | 19,988 |
| 1064.9% |
|
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|
|
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Interest income
Interest income is directly related to interest earned on our cash reserves.
Interest expense
Interest expense is directly related to interest owed on our borrowings under our Macquarie Credit Agreement, our financing obligation with VICI PropCo, the BMO Credit Agreement, the fair value adjustments for our interest rate swap agreements, our CPL and CRM borrowings, our capital lease agreements and interest expense related to the CDR land lease.
Taxes
Income tax expense is recorded relative to the jurisdictions that recognize book earnings. During the six months ended June 30, 2020, we recognized income tax expense of $3.1 million on pre-tax loss of ($55.8) million, representing an effective income tax rate of (5.6%), compared to income tax expense of $2.1 million on pre-tax income of $4.2 million, representing an effective income tax rate of 50.1% for the same period in 2019. For further discussion on our effective income tax rates and an analysis of our effective income tax rate compared to the US federal statutory income tax rate, see Note 9, “Income Taxes,” to our condensed consolidated financial statements included in Part I, Item 1 of this report.
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive, and we rely heavily on the ability of our casinos to generate operating cash flow. We use the cash flows that we generate to maintain operations, fund reinvestment in existing properties for both refurbishment and expansion projects, repay third party debt, and pursue additional growth via new development and acquisition opportunities. When necessary and available, we supplement the cash flows generated by our operations with either cash on hand or funds provided by bank borrowings or other debt or equity financing activities. In 2020, our liquidity has been adversely affected by temporary closures of all of our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19, as discussed below.
As of June 30, 2020, our total debt under bank borrowings and other agreements net of $9.8 million related to deferred financing costs was $194.2 million, of which $183.5 million was long-term debt and $10.6 million was the current portion of long-term debt. The current portion relates to payments due within one year under our Macquarie Credit Agreement, the CPL credit facility, the UniCredit Loan and the CRM credit facility. For a description of our debt agreements, see Note 6, “Long-Term Debt,” to our condensed consolidated financial statements included in Part I, Item 1 of this report. Net Debt was $152.4 million as of June 30, 2020 compared to $25.5 million as of June 30, 2019, due to additional borrowings related to the Acquisition and drawdowns of $17.4 million on our Revolving Facility and credit agreement with UniCredit in March 2020 as a proactive measure to increase our cash position and preserve financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic. For the definition and reconciliation of Net Debt to the most directly comparable US GAAP measure, see “Non-US GAAP Measures – Net Debt” above.
The following table lists the amount of remaining 2020 maturities of our debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Macquarie Credit Agreement |
| Casinos Poland |
| UniCredit Loan |
| Century Downs |
| UniCredit Agreement |
| Total | ||||||
$ | 10,800 |
| $ | 370 |
| $ | 247 |
| $ | — |
| $ | — |
| $ | 11,417 |
There is no set repayment schedule for the CPL credit facility, and we classify it as short-term debt due to the nature of the agreements. We classified the $10.0 million Revolving Facility as current portion of long-term debt due to the repayment of the Revolving Facility on July 30, 2020.
The following table lists the amount of remaining 2020 payments due under our lease agreements:
|
|
|
|
|
|
|
|
Amounts in thousands |
|
|
|
|
|
| |
| Operating leases |
| Finance leases |
|
| Total | |
$ | 2,665 |
| $ | 77 |
| $ | 2,742 |
In addition to these payment obligations, we are required to pay annual rent of approximately $25.1 million under the Master Lease and $1.5 million under the CDR land lease financing obligation, excluding variable rent payments. Cash payments related to the Master Lease and CDR land lease were $10.4 million and $0.9 million, respectively, for the six months ended June 30, 2020.
Cash Flows
At June 30, 2020, cash, cash equivalents and restricted cash totaled $52.5 million, and we had working capital (current assets minus current liabilities) of $2.6 million compared to cash, cash equivalents and restricted cash of $55.6 million and working capital of $22.8 million at December 31, 2019. The decrease in cash, cash equivalents and restricted cash from December 31, 2019 is due to $6.0 million used to purchase property and equipment, a $1.2 million payment related to the working capital adjustment in the Acquisition, $0.7 million in deferred financing costs, $0.4 million net cash used by operating activities, a $0.2 million distribution to non-controlling interests at CDR and $0.7 million in exchange rate changes, offset by $5.8 million in proceeds from borrowings net of principal payments.
Net cash used in operating activities was $0.4 million for the six months ended June 30, 2020 and net cash provided by operating activities was $7.5 million for the six months ended June 30, 2019. Our cash flows from operations have historically been positive and sufficient to fund ordinary operations. Cash flow from operations for the six months ended June 30, 2020 was negatively impacted by the suspension of our operations due to COVID-19. Trends in our operating cash flows tend to follow trends in earnings from operations, excluding non-cash charges. Please refer to the condensed consolidated statements of cash flows in Part I, Item 1 of this Form 10-Q and to management’s discussion of the results of operations above in this Item 2 for a discussion of earnings from operations.
Net cash used in investing activities of $7.1 million for the six months ended June 30, 2020 consisted of $0.4 million for slot machine purchases at our Colorado properties; $0.6 million for slot machine purchases, $0.2 million in rebranding signage and $1.7 million for player tracking systems at our Missouri properties; $0.2 million for surveillance upgrades at our West Virginia property; $0.4 million for table game equipment and $0.5 million in building updates at our Edmonton properties; $0.2 million for table game equipment at our Calgary properties; $0.2 million in casino improvements in Poland; $1.5 million in other fixed asset additions at our properties; and the $1.2 million payment related to the working capital adjustment in the Acquisition.
Net cash provided by financing activities of $5.0 million for the six months ended June 30, 2020 consisted of $5.8 million in proceeds from borrowings on our long-term debt net of principal repayments, offset by $0.7 million in deferred financing costs and a $0.2 million distribution to non-controlling interests in CDR.
Common Stock Repurchase Program
Since 2000, we have had a discretionary program to repurchase our outstanding common stock. In November 2009, we increased the amount available to be repurchased to $15.0 million. We did not repurchase any common stock during the six months ended June 30, 2020. The total amount remaining under the repurchase program was $14.7 million as of June 30, 2020. The repurchase program has no set expiration or termination date.
Potential Sources of Liquidity and Short-Term Liquidity
Historically, our primary source of liquidity and capital resources has been cash flow from operations. When necessary and available, we supplement the cash flows generated by our operations with funds provided by bank borrowings or other debt or equity financing activities. In addition, we have generated cash from sales of existing casino operations and proceeds from the issuance of equity securities upon the exercise of stock options.
The COVID-19 pandemic has had an adverse effect on our first and second quarter 2020 results of operations, financial condition and liquidity, and we expect the situation will continue to have an adverse effect on results of operations, financial condition and liquidity for the remainder of 2020. The duration and impact of the COVID-19 pandemic otherwise remains uncertain. Between March 13, 2020 and March 17, 2020, we closed all of our casinos, hotels and other facilities to comply with quarantines issued by governments to contain the spread of COVID-19. Our Polish locations reopened on May 18, 2020 and our North American operations reopened between June 1, 2020 and June 17, 2020.
During to the temporary closures of our casinos, hotels and other facilities, we took actions to reduce operating costs, including furloughing most of our personnel, implementing reduced work weeks for other personnel and temporarily reducing salaries to senior management on a voluntary basis. During the closures, we continued to pay benefits to our United States and Canadian employees, including part time employees. In Poland, all employees were paid reduced salaries based on local employment laws. We continue to operate with reduced spending on most advertising and marketing costs as well as implementing cost saving initiatives that are intended to eliminate approximately $13.7 million of non-labor operating costs in 2020. We intend to defer or eliminate approximately $2.2 million of discretionary capital projects for the remainder of 2020 in order to proactively address our capital spending for 2020. Additionally, we negotiated arrangements with some of our contractual counterparties, such as vendors and lessors, to modify the timing of certain contractual payments.
In March 2020, as a proactive measure to increase our cash position and preserve financial flexibility in light of the uncertainty resulting from the COVID-19 pandemic, we borrowed an additional $9.95 million on the Revolving Facility under the Macquarie Credit Agreement and $7.4 million on the UniCredit credit agreement. We did not use any portion of the $9.95 million borrowed under the Revolving Facility to fund operations, and maintained such borrowings in cash and cash equivalents until repaid as described below.
The Revolving Facility includes a springing leverage ratio (the “Financial Covenant”) tested as of the last day of each fiscal quarter in which borrowings under the Revolving Facility as of such day equal or exceed $3.5 million. In March 2020, based on the anticipated timing of reopening our casinos, hotels and other operations that had been closed due to the COVID-19 pandemic, and based on the anticipated use of all or a portion of the $9.95 million borrowed under the Revolving Facility to fund operations prior to such reopening, we projected that, if we were unable to repay the Revolving Facility below $3.5 million on or before the last day of a fiscal quarter, a potential future violation of the Financial Covenant could occur. Prior to June 30, 2020, we projected that we would be in compliance with the Financial Covenant as of June 30, 2020 and therefore we elected not to pay the Revolving Facility below $3.5 million on or before such date.
We and the lender under the Macquarie Credit Agreement are currently reviewing the Financial Covenant calculation as of June 30, 2020 to determine whether we were in compliance with the covenant or were in default as of such date. If a default exists under the Financial Covenant as of June 30, 2020, we will not be able to borrow under the Revolving Facility or take certain actions that would otherwise be permitted under the Revolving Facility, and the lender may exercise other remedies, until such default is waived by the lender or the Macquarie Credit Agreement is amended. We repaid the Revolving Facility down to $0 as of July 30, 2020, except for a $50,000 letter of credit that we are in the process of cash collateralizing. We do not project a need for borrowing under the Revolving Facility in the future. As a result, compliance with the Financial Covenant under the Revolving Facility would not be required in future periods. If a default under the Financial Covenant has occurred, management intends to discuss a waiver of the default or amendment to the Macquarie Credit Agreement. We were in compliance with all financial covenants under our other credit agreements as of June 30, 2020.
We estimate that the net cash outflows related to operations during the time they were fully suspended were, on average, approximately $8.0 million per month, and that we spent approximately $14.7 million through June 30, 2020 to reopen operations and cover short-term cash needs at the casinos.
We cannot predict the negative impacts that the failure to suppress the spread of COVID-19 will have on our consumer demand, workforce, suppliers, contractors and other partners and, although all locations have reopened, whether future closures will be required. Such closures have had and will continue to have a material impact on our business. While the severity and duration of such business impacts cannot currently be estimated, the effects of COVID-19 and the requirements of health and safety protocols are expected to continue to have a material impact on our business.
We may be required to raise additional capital to address our liquidity and capital needs. We have a shelf registration statement with the SEC that became effective in July 2020 under which we may issue, from time to time, up to $100 million of common stock, preferred stock, debt securities and other securities.
If necessary, we may seek to obtain further term loans, mortgages or lines of credit with commercial banks or other debt or equity financings to supplement our working capital and investing requirements. Our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings. A financing transaction may not be available on terms acceptable to us, or at all, and a financing transaction may be dilutive to our current stockholders. The failure to raise the funds necessary to fund our debt service and rent obligations and finance our operations and other capital requirements could have a material and adverse effect on our business, financial condition and liquidity.
In addition, we expect our US domestic cash resources will be sufficient to fund our US operating activities and cash commitments for investing and financing activities. While we currently do not have an intent nor foresee a need to repatriate funds, we could require more capital in the US than is generated by our US operations for operations, capital expenditures or significant discretionary activities such as acquisitions of businesses and share repurchases. If so, we could elect to repatriate earnings from foreign jurisdictions in the form of a cash dividend, which would generally be exempt from taxation with the exception of the adverse impact of withholding taxes. We also could elect to raise capital in the US through debt or equity issuances. We estimate that approximately $23.7 million of our total $51.6 million in cash and cash equivalents at June 30, 2020 is held by our foreign subsidiaries and is not available to fund US operations unless repatriated.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We had no material changes in our exposure to market risks from that previously reported in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2019.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures – Our management, with the participation of our principal executive officers and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, for the period covered by this report. Based on such evaluation, our principal executive officers and principal financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting –There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1A. Risk Factors
The COVID-19 pandemic has had and will continue to have an adverse effect on our business, operations, financial condition, operating results and liquidity, and the ultimate outcome of the pandemic is uncertain
In late 2019, an outbreak of a new strain of coronavirus, COVID-19, was identified in China and has since spread rapidly around the world as a pandemic, prompting aggressive actions by local, state, federal and provincial governments in the US, Canada and elsewhere to control the spread of the coronavirus. COVID-19 has significantly affected virtually all facets of the United States and global economies. This outbreak and the actions taken in response to this public health epidemic, pose the risk that we or our employees, suppliers, and other business partners may be prevented from conducting business activities for an unknown period of time. Restrictions on travel, quarantines and other measures imposed in response to the COVID-19 pandemic, as well as ongoing concern regarding the virus’ potential impact, have had and will likely continue to have a negative effect on economies and financial markets, including supply chain shortages and additional business disruptions. Between March 13, 2020 and March 17, 2020, we temporarily closed all of our casinos, hotels and other facilities to comply with quarantine orders issued by governments to contain the spread of COVID-19. Our Polish locations reopened on May 18, 2020 and our North American operations reopened between June 1, 2020 and June 17, 2020. The reopening approaches varied, with casinos in some jurisdictions reopening fully and others permitted to operate with reduced levels of gaming space or without table games. In addition, some locations are operating with limited restaurant operating hours or continued closure of restaurants, requirements to wear face masks, including the potential to require guests to wear face masks, increased frequency of disinfecting surfaces and other measures to account for varying levels of demand. The temporary closures of all our facilities between March 2020 and June 2020 due to COVID-19 negatively impacted our results for the three and six months ended June 30, 2020. We estimate that net operating revenue and Adjusted EBITDA for the six months ended June 30, 2020 were adversely impacted by approximately $91.3 million and $34.3 million, respectively, due to these closures. We estimate that the net cash outflows related to operations during the time they were fully suspended were, on average, approximately $8.0 million per month.
The COVID-19 pandemic has significantly increased demand uncertainty. Although our properties are again operating, some customers may choose for a period of time not to visit our properties as a result of continuing concerns related to COVID-19, which could lead to lower attendance and further disruptions in our business and results of operations. Governmental officials may impose restrictions on travel or introduce social distancing measures. If the coronavirus continues to spread in the United States or in other jurisdictions in which we operate, or the virus recurs, we may elect on a voluntary basis to again close certain of our properties or portions thereof, or governmental officials may order additional closures, impose further restrictions on travel or introduce additional social distancing measures. The current and future impact of the COVID-19 pandemic, including its effect on the ability and desire of people to visit is expected to continue to impact our results, operations, outlooks, plans, goals, growth cash flows and liquidity. The extent of the effects of the outbreak on our business and the casino industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, future recurrences of the outbreak and the length of time it takes for normal economic and operating conditions to resume, if at all.
Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our costs, such as, for example, the need for enhanced health and hygiene requirements in one or more regions in attempts to counteract future outbreaks. Further, COVID-19 may also affect our operating and financial results in ways that are not presently known to us or that we currently do not consider present significant risks to our operations. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and liquidity.
General economic conditions affecting discretionary consumer spending may have an adverse impact on our business, financial condition or results of operations.
The current outbreak and continued spread of COVID-19 has created economic uncertainty and could cause a global recession. Adverse changes in the economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from business shutdowns and associated mass layoffs by businesses, and the adoption of social distancing and other policies to slow or control the spread of the virus, are likely to have a negative impact on demand for casinos, including ours, and these impacts could exist for an extensive period of time. Our success depends to a large extent on discretionary consumer spending, which is heavily influenced by general economic conditions and the availability of discretionary income. Difficult economic conditions and recessionary periods may have an adverse impact on our business and our financial condition. Negative economic conditions, coupled with high volatility and uncertainty as to the future economic landscape, have at times had a negative effect on consumers’ discretionary income and consumer confidence, and similar impacts can be expected should such conditions recur. A decrease in discretionary spending due to decreases in consumer confidence in the economy or us, or a continued economic slowdown or deterioration in the economy, could adversely affect the frequency with which customers choose to visit our properties and the amount that our customers spend when they visit. The actual or perceived weakness in the economy could also lead to decreased spending by our customers. Both customer visits and customer spending at our casinos are key drivers of our revenue and profitability, and reductions in either could materially adversely affect our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In March 2000, our board of directors approved a discretionary program to repurchase up to $5.0 million of our outstanding common stock. In November 2009, our board of directors approved an increase of the amount available to be repurchased under the program to $15.0 million. The repurchase program has no set expiration or termination date and had approximately $14.7 million remaining as of June 30, 2020. There were no repurchases of common stock during the six months ended June 30, 2020.
Item 5.Other Information
On August 5, 2020 we announced that we had entered into a definitive agreement to sell the casino operations of Century Casino Calgary for CAD 10.0 million ($7.5 million based on the exchange rate on July 31, 2020) plus a three year quarterly earn out as specified in the agreement. The CAD 10.0 million was paid at the execution of the definitive agreement and is non-refundable except in the event we are in breach of certain covenants set out in the agreement and subject to working capital and other adjustments. We will continue to operate Century Sports (sports bar, bowling and entertainment) and to own the real estate. Upon closing of the transaction, we will enter into a three year lease agreement with the purchaser of the casinos operations for annual net rent of CAD 480,000 ($358,102 based on the exchange rate on July 31, 2020). The transaction is expected to close in consent to the sale of the casino operations of Century Casino Calgary.
We recorded a loss of $0.1 million to general and administrative expenses on our condensed consolidated statement of (loss) earnings for the three and six months ended June 30, 2020 related to the estimated costs we will incur for the sale. Held for sale assets on our condensed consolidated balance sheet as of June 30, 2020 include $0.1 million in inventories and $0.5 million in property and equipment, net. Held for sale liabilities on our condensed consolidated balance sheet as of June 30, 2020 include $0.2 million in accrued liabilities.
Item 6. Exhibits
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Exhibit No. | Document |
3.1P | Certificate of Incorporation of Century Casinos, Inc. is hereby incorporated by reference to the Company’s Proxy Statement for the 1994 Annual Meeting of Stockholders. |
31.1* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Co-Chief Executive Officer. |
31.2* | |
31.3* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Chief Financial Officer. |
32.1** | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Co-Chief Executive Officer. |
32.2** | |
32.3** | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Chief Financial Officer. |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* Filed herewith.
** Furnished herewith.
P Filed on Paper
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CENTURY CASINOS, INC.
/s/ Margaret Stapleton
Chief Financial Officer
Date: August 7, 2020